And the Treasury is also consulting on how investment banking distress should be handled in the light of the problems with the Lehmans insolvency and administration since last autumn. 7 Cross-border resolutions There is also a vital cross-border element to all of this, which absolutely must be recognised and tackled if we are to establish sounder foundations for a world of free, global capital markets. 6  I owe that expression to my colleague Paul Fisher. 7  See, HM Treasury (2009), “Developing effective resolution arrangements for investment banks”, May 2009. 6  BIS Review 83/2009  Around thirty-five years ago the founding document of the rules of the game for international banking was issued: the Basel Concordat for the supervision of internationally active banks. Although updated in the early 1980s to embrace consolidated supervision in the wake of Banco Ambrosiano’s collapse, its essential precepts have remained unchanged. 8 Home supervisors carry the responsibility for consolidated supervision. Broadly, hosts carry little or no responsibility for branches, other than for liquidity, although it is not easy to pin down what that means; but hosts carry somewhat greater responsibility for the soundness of subsidiaries. (Within well-defined regional areas, variants can operate: eg passporting within the EU.) The point of rehearsing all that familiar stuff is that the division of labour for supervision of banks during peacetime absolutely must be consistent with the insolvency and other regimes that would operate in the event of failure or distress.
Economic activity would have been lower and unemployment – particularly youth unemployment – higher. This would have had a disproportionately higher impact on the incomes of the poor and the young. At the same time, inflation would have been lower, which research shows transfers wealth from younger households to older households, who are more likely to be savers.3 So the ECB not acting also carried distributional implications. Further, the deeper and more prolonged recession would likely bring about greater hysteresis, depressing future growth and hence returns for savers. Overall, households would have been worse off had the ECB not acted. Counterfactual discussions aside, how have households fared across the euro area? To gauge the effect on different euro area households, we can draw upon results from the Eurosystem’s Household Finance and Consumption Survey (HCFS), conducted in 2010 and 2014. Even though these surveys do not cover the period since the introduction of the negative deposit facility rate, they do coincide with declines of 2-year euro area benchmark bond yields by 130 basis points and 10-year bonds by 110 basis points. Euro area net financial income as a fraction of total household income fell slightly. When looking more closely at households grouped by wealth quintiles, we find that households with the lowest net wealth, whose debt payments are higher than their financial income, had an unchanged position. Households with the highest net wealth, whose financial income is much higher than their debt, had the most marked fall in income.