Otherwise upon insolvency, it cannot be recapitalised back to the regulatory requirement. See page eight of Tucker (2013), “Resolution and Future of Finance.”  12  See Admati and Hellwig (2013), “Does Bank Debt Discipline Bankers? An Academic Myth about Bank Indebtedness”. While Admati and Hellwig point out the deficiency of short-term debt as a source of market discipline, they pay insufficient attention to longer-term debt given its role in recapitalising banks under resolution. 13  Or, more accurately, from whichever parts of the group were going to be resolved together as a unit under the preferred resolution strategy. See forthcoming Guidance from the Financial Stability Board. BIS central bankers’ speeches  5  the system’s evolving structure, or temporarily tighten capital requirements while the especially threatening circumstances last. Second, behaviour within the financial system itself can generate elevated risks. And that tendency towards exuberance is not solely down to moral hazard. Quite apart from TBTF, another driving force comes from myopia – a tendency to overlook risks in banking during buoyant conditions.14 Eventually risk does crystallise, prompting bankers and investors to wake up to the overvaluation of their assets and excessive leverage in the system. Credit tightens, exacerbating the macroeconomic downturn, and so on. Solving the TBTF problem is absolutely necessary but will not be sufficient to consign boom and bust to the past. Banking systems comprising lots of small banks have been capable of driving themselves over the cliff.
It should also be noted that the separation of spending of petroleum revenues from the current revenue stream through a fund mechanism allows oil producers to extract petroleum at a higher rate than would be appropriate if all the proceeds were to be redeployed in the domestic economy. Hence, the petroleum funds do not just offer an attractive way of recycling oil producers’ revenues in international financial markets, they can also have an indirect stabilising effect on the oil market. In my view, sound management of oil-producing countries’ petroleum wealth is in everyone’s interest. Thank you for your attention. 4  BIS Review 81/2008  BIS Review 81/2008  5  6  BIS Review 81/2008  BIS Review 81/2008  7  8  BIS Review 81/2008  BIS Review 81/2008  9