In this context, we also welcome the ongoing work by international organisations, including the IMF and World Bank, on the design of efficient and effective insolvency regimes worldwide. It is, of course, difficult to establish international standards in this area, because the approaches adopted by different countries reflect not only different legal traditions but also different policy choices, most especially on the extent to which the system should favour debtors or creditors. Indeed, this is a debate that is live in several countries, including the UK where new measures were announced last month in the Queen’s Speech, and I am sure is occupying minds at this Congress. But the IMF work argues, rightly in my view, that any insolvency regime, whether debtor- or creditor-oriented, will enhance financial stability effectively only if it protects value for the benefit of all interested parties and the economy in general; and this requires the allocation of risk among market participants to be done in a way that is predictable, equitable and transparent. Financial sector restructurings Let me turn now to my second area: financial sector restructurings, and I would like to start by noting the importance of confidence in the smooth running of a financial system. Confidence is important in most industries, but it is at the heart of the financial industry. It is confidence that permits banks to operate, as a matter of course, with gearing many times capital, and with a maturity mismatch between their assets and liabilities, often concentrated in short-term or sight deposits.
I recognise, of course, that more progress has been made in the corporate context than in the area of financial institutions or sovereign debts; and I think that reflects great credit on many individuals and organisations represented at this Congress. So I will start by offering a few thoughts on corporate workouts, linking these to the Bank of England’s long-standing involvement in the London Approach and our responsibility for the maintenance of financial stability. I will then turn to look at how the desirable features, incorporated into the agreed principles governing international corporate workouts, might be applied to financial restructurings; and finally in a similar way look to whether these principles can be carried across into the field of sovereign workouts. This raises the issue of the role of the various different parties to debt restructurings, including the official sector. By drawing out some common themes, I hope to put INSOL’s work on the corporate sector into the broader context of differing approaches to resolving debtor difficulties. Corporate workouts Let me start then with corporate workouts; and let me begin by saying a few words about the Bank’s interest in this issue. As I noted a moment ago, it arises mainly from our financial stability responsibility, although I would argue that our role in promoting the efficiency and effectiveness of the financial system is also relevant.