I would like to end by raising a couple of questions about the future shape of financial markets. The first is the extent to which we should be integrating both our analysis of risk and our approach to regulation between the insurance industry on the one hand and capital markets on the other. Quite apart from the increasing institutional interlinkages, the extent of risk transfer now going on between different parts of the financial sector demands a consistent approach to capital requirements across the sector as a whole. A second issue is the need to reflect liquidity conditions in determining the appropriate level of capital. If an asset can be disposed of quickly - that is if there is a robust liquid market for the asset concerned - the capital needed to guard against unexpected price movements will be less than if the prospective holding period is long. Liquidity conditions can of course vary dramatically not just between different instruments but over time and understanding how and why they vary will, I think, be an important area of investigation for the future. Conclusion That concludes a quick summary of some of the financial stability issues relating to risk and capital levels that we at the Bank of England are working on at the moment. Central bankers are by their nature a worrying breed (in both senses of the word! ), and commentators often note the regularity with which the Monetary Policy Committee says that it finds the outlook 'more than usually uncertain'.
Loss absorbing capacity for CCP resolution Let me start by discussing the loss-absorbing capacity needed for CCP resolution. The use of a bail-in tool on a bank unlocks the loss absorbing capacity of the non-equity part of its balance sheet, the part that would otherwise only bear loss in insolvency or in a voluntary restructuring. Applying this concept of going and gone concern resources to CCPs is a less straightforward task. Unlike a bank, a CCP’s own loss absorbing resources sit both on its balance sheet as margin and default fund and off it in the form of contingent claims on its members. Consistent with the PFMIs, these arrangements are intended to be comprehensive at least insofar as they cover losses that could arise from clearing member default. That begs a question as to what additional loss absorbency the resolution of a CCP can currently unlock that recovery cannot unlock already. The question of loss absorbency is one that the FSB is looking at. Do we need additional resources in the waterfall beyond existing funded and unfunded resources? If additional resources are required, should the initial margin held by a CCP be made available if it would have suffered losses in insolvency? Or should CCPs hold other resolution resources instead? BIS central bankers’ speeches  3  I will not prejudge that debate here. However, I do think there is value in clarifying what is meant by the expression “TLAC for CCPs”. Total loss absorbing capacity is not simply shorthand for subordinated debt.