In the UK, the FSA has recently published how they will approach this international effort. 6 It is a formidable task. Working with the FSB secretariat, my role, as chairman to the CrossBorder Crisis Management Working Group, will be to help colleagues to flush out the issues, so that they can be properly debated and reviewed by G20 Ministers and Governors later next year. With the European Commission on the FSB and also the resolution working group, I hope that will also help to inform work at the European level. There will quite probably be hard questions. They could include whether something needs to be done about the complex structures and organisation of some banks. Another big issue might be which services truly need to be maintained. Whether there are conflicts between the insolvency laws and special resolution regimes of different countries that would materially impede effective resolution for some groups. And another would be whether losses can in the future credibly be made to fall on wholesale creditors. Maybe even about burden sharing amongst national authorities if fiscal support proves unavoidable when an internationally active bank fails. In all this the objective, of course, is to get to a place where taxpayers’ resources are not needed, implicitly or explicitly, to underpin the national and international credit systems. And some of those operational questions, therefore, shade into the broader debates about the structure and regulation of the financial system. 7 Of that list of issues, I should highlight two today.
We also would like to see a more determined effort to provide more transparency and clarity in these systems’ procedures and settlement activity, so that participants and members have a heightened understanding of their obligations and exposures in a situation that would test a system’s risk controls. The safety and soundness standards for payments and settlement infrastructure have been complemented by sound practices for operational resilience. During the past three years, core clearing and settlement organizations in the U.S. have come a long way toward meeting more demanding objectives for recovery and resumption. Going forward, it is important that the major firms maintain a level of resilience that is commensurate with their essential positions in the financial system. Over time, we expect firms will take advantage of cost-effective improvements in technology and business processes to increase, where needed, the geographic diversification of their back-up sites. We also expect senior management at each firm to assure itself through rigorous testing that their firms can, in fact, rapidly recover or resume their important settlement activity. We also need to continue to pay more attention to how to reduce the threat of cyber-attacks. Beyond the direct financial  2  BIS Review 59/2004  losses from criminal activity, these threats pose a broader risk to confidence in the integrity of financial institutions, payments systems, and ultimately, the global payments network. This is a growing challenge, and it will require a major ongoing commitment of resources.