Under the proposals, essential payment services and insured deposits would be provided by a ring-fenced bank (RFB), capitalised separately and with no direct financial links to the group’s other businesses. If that succeeds in making the RFB super-resolvable, it should be easier for the UK authorities to retreat to maintaining at least the most basic payments services if a preferred strategy of top-down resolution of a whole group could not be executed. The introduction of ring-fenced domestic retail banks is, therefore, consistent with the broader international agenda on resolution. For each SIFI, the global authorities probably need not only a preferred resolution strategy for the group as a whole, but also a fall back. For example, are the clearing services provided by broker-dealers so important that they need to be maintained come what may? Recovery plans and preparing for resolution A final point. There is great emphasis on recovery and resolution plans, RRPs. As familiarly used, Recovery is a binary process – either it works, the firm survives and, thankfully, there is no resolution; or, alternatively, the best-laid and executed recovery plan fails, the firm fails, and it enters resolution. But this is too crude a way of thinking about Recovery. Of course Recovery is primarily about delivering recovery. That is what we all want. But it is not all. The period in which recovery is being attempted also provides a window for the firm and the resolution authorities to prepare in case recovery cannot in the event be achieved.
11  See Tucker, P. M. W. (2012), The role of deposit insurance in building a safer financial system. BIS central bankers’ speeches  7  Finally, whatever types of deposit end up being preferred, there should be no discrimination on grounds of location or nationality. The chosen creditor hierarchy should apply the same way to all branches of a bank throughout the world. The Financial Stability Board Key Attributes are clear about that.12 I do not need to remind this audience that depositor preference would not be a guarantee against the relevant uninsured deposits (or the DGS) ever taking losses. But they would be exposed to loss only after bonds, as well as equity, had been wiped out. The greater the gone-concern LAC requirement for bond issuance, the lower the probability of any preferred deposits incurring loss. Group structure: having LAC in the right place, and operational dependencies It will have been apparent from my earlier description of high-level resolution strategies that where and how a group maintains its LAC will vary somewhat according to whether the preferred resolution strategy is SPE or MPE. For SPE resolutions, sufficient loss-absorbing capacity must be at the topco. But more than that, there has to be a mechanism for transferring losses from operating subsidiaries, wherever they are in the world, to the topco. One way of doing that would be for Topco to guarantee the performance of the obligations of its systemically significant and other key operating subsidiaries.