This is not a criticism of statistical agencies: the UK’s Office for National Statistics (ONS), down the road in Newport, do a fantastic job of tracking our economy, to say nothing of the help they have provided with this speech. It is simply that, in a dynamic economy, it is impossible to track everything with statistical precision. 1 Faced with those uncertainties, it is often useful to try to form pictures using disaggregated subsets of the jigsaw pieces – much as we do when completing a large jigsaw puzzle. As with a jigsaw, this can help in understanding the bigger picture. Second, standard measures of economic activity, such as GDP, are not perfect metrics of societal well-being. This problem has long been recognised, including by the original architects  1  2  For example, see the recent review of the UK’s statistical system (Bean (2016)). BIS central bankers’ speeches  of GDP. 2 It is one reason why statistical agencies in a number of countries, including the UK, have recently begun publishing a broader range of measures of well-being, social as well as economic, subjective as well as objective. These provide a different window on how economies and societies are performing over time and across sectors. Third, even though monetary policy cannot discriminate between regions, sectors or individuals, that does not mean its impact is exactly the same across each of these groupings. It is not. The effects of interest rates, whether higher or lower, affect savers and borrowers very differently.
Where TLAC is issued in a group brings me to the final key dimension of TLAC – distribution. One of the big innovations of TLAC is to go beyond previous capital accords to address the distribution of loss absorbency within groups. This was always going to be necessary for resolution which operates at legal entity, not group level. And it is essential to engender trust and time consistency between authorities cross-border. As it is set out in the principles covering the Term Sheet, host authorities must have confidence that there is sufficient loss absorbing and recapitalisation capacity available to subsidiaries in their jurisdictions with legal certainty at the point of entry into resolution. Internal TLAC – prepositioned loss absorbency down-streamed from the resolution entity to material subgroups, equivalent to 75–90% of the subgroup’s needs – is designed to achieve this, without pushing up overall TLAC requirements for the group as a whole. It also provides a mechanism in an SPE strategy through which by converting the internal TLAC via contractual terms, the key operating subsidiaries can be kept outside resolution and the losses can be transmitted to the top of the group for the resolution to take place in one legal entity, be that a holding company or a parent bank, in one jurisdiction. Again this addresses the concerns that some have expressed about making resolution work cross-border in different legal regimes. So if those are the trees, what is the wood?