When banks turned to shareholders or the marketplace to raise new capital, they often were confronted with concerns about market perception, dilution of existing shareholders, potential loss of control by the current owners, and reduction of prices of existing equity and debt. These were and are valid issues, but again, judging from experience, they proved to be secondary to the central issue of ultimate recovery or resolution of the bank. BIS Review 86/1998  -7-  The enlightened self-interest of the management of a troubled bank usually allows it to see what needs to be done and to take appropriate action. If not, supervisors must have the means to step up the pressure through statutory enforcement powers. While the pressure initially can be informal and private, in the form of supervisory letters or similar instruments, it must be possible to move to more formal types of agreements with the board of directors of a troubled banking institution. Fifth, bank management and supervisors resolved troubled banking institutions. In the first instance, this meant understanding and helping bank boards of directors to understand what the options were for realizing value from the institution. Even for a bank losing substantial amounts of money, there may be aspects that represent valuable customer franchises or the opportunity to enter a new market or the ability to consolidate operations and increase operating leverage. These are assets for which there is a market—and a market price.
This is an effort that the Basle Committee plans to support not only through continued work on the Core Principles and the Compendium, but by providing expertise and supervisory resources to supplement and advise IMF and World Bank staff. The members of the Basle Committee in many cases have the staff with the deep expertise to help emerging markets supervisors with the application of the Principles in their national context and in light of various BIS Review 86/1998  -9-  obstacles. The IMF and World Bank have expressed their desire to bring more of that expertise to bear in their efforts, and we have begun discussions on how to accomplish that most effectively. In addition, we believe that first-hand observation of the practical issues in implementation will suggest what further elaboration and precision would be most useful to the Core Principles, and what additional research and papers, programs by the Institute for Financial Stability or specific technical assistance could supplement them. Our goal is to keep the Core Principles relevant, incisive and implemented by supervisors globally. In addition, we in the broader financial supervisory community must set thoughtful goals for ourselves as we manage our individual agendas. The problems that have beset many countries in Asia, Russia and other regions and countries are not confined to the banking sector, although that may be the largest part of the financial sector.