We are also establishing stricter requirements for financial standing of turnaround managers. However, stricter control does not remove systemic deficiencies of financial resolution, namely: –  longtime presence in the market of undercapitalised banks under resolution (up to 10 years);  –  high cost: the current lending scheme provides for allocation of 1.6-fold more resources than acquiring a share in the capital, that also has indirect implications and aggravates structural liquidity surplus;  –  consolidation of banks under resolution is impossible as they have different turnaround managers appointed under bankruptcy proceedings;  –  insufficiency of financially sound turnaround managers;  –  higher DIA debt burden;  –  long loan maturities;  –  and the last one is the above-mentioned use of banks under resolution as a ‘bad asset depot’ by turnaround managers. Also, all of these are indeed systemic shortcomings of our mechanism, the one that has been around for many years. This resolution mechanism has seen no change since the time it was set up. It is still grounded in long-term soft credits extended in large amounts to entities wishing to take part in a financial turnaround. It is time for us to make the next step – the one to enable us to overcome these problems. BIS central bankers’ speeches  7  The Bank of Russia stands ready to assume broad responsibility for the impact of bank resolutions, acting, in addition to its role of the main funding source, as a central enabling facilitator to this process.
The August 2020 Financial Stability Report (FSR) showed that the cumulative loss of UK economic output associated with the outbreak of Covid-19 would need to be around twice as big as the Monetary Policy Committee’s central projection. 21  12  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  12  The post-crisis capital framework has proved resilient so far and we need to wait out the Covid stress before we can complete our evaluation. In the meantime, it is imperative that Basel jurisdictions implement the last part of the post-crisis reforms – what in the UK we call Basel 3.1 and elsewhere is sometimes referred to as ‘endgame Basel 3’. These reforms have nothing to do with the design of regulatory buffers and the overall Basel 3 capital resource framework built in the aftermath of the Global Financial Crisis, which was in large part all about the numerator of the capital ratio. By contrast, Basel 3.1 is about how to ensure risk weights, especially internally-modelled risk weights, are measured robustly – it’s about the robustness of measuring the denominator of the capital ratio. We should be getting on to implementing these measures consistent with the agreements we made when sitting around the Basel table. At the same time, we should not ignore the evidence that points towards issues with the original Basel 3 vision on buffer usability.