BIS central bankers’ speeches  5  This gone-concern LAC could be senior unsecured bonds or subordinated bonds.7 Bonds issued outside the issuing firm’s home jurisdiction are going to need to include legally robust clauses under which holders unequivocally accept that the home Resolution Authority can apply the bailin tool (and other resolution tools) to their investment. If that cannot be achieved, gone concern LAC is going to have to be issued from each firm’s country of domicile. There should not be cross-default clauses in other liabilities, including elsewhere in the group that could be triggered by bailing in these bonds.8 Beyond the terms of bond issues, the authorities are going to need to decide how much loss-absorbing capacity SIFIs need to have in issue. In Europe, the draft resolution directive provides a framework for that. But a global discussion is needed. My own provisional view is that the minimum for bonded debt might need to be equivalent to the sum of the firm’s regulatory equity requirement plus a margin (X) less any surplus equity. That would mean that bailin could be used to cover losses beyond a firm’s required equity base up to an amount X and then to recapitalise back to the ab initio equity standard.
As with other areas of economic policy, research in this field can help drive the action which I want to speak about next. III. And yet, it is still possible to transform public services The key issue with operating expenditure Neither our strategic review of the past few decades nor economic research offers much hope for progress. This leaves one way forward, namely practitioners and their commitment on the ground. I will therefore now focus on government operating expenditure, which is used in particular to produce major public services. It is sometimes argued that the deterioration in the public finances is primarily due to high amounts of social protection expenditure and transfers, which amounted to approximately EUR 900 billion ix in 2022, or 34% of GDP. Operating expenditure is far from being negligible: it accounts for almost a third of public spending (EUR 475 billion, or 18% of GDP) and is therefore a significant potential source for improving public sector efficiency. Central government and national agencies account for EUR 200 billion of this amount, but local authorities with EUR 155 billion account for an increasing proportion. When measured in terms of number of public employees, resources have steadily increased over time. According to the Cour des Comptes, x the number of public sector employees grew by more than one million between 1996 and 2020, i.e. an increase of 23% driven largely by local government (+58%, and  Page 13 of 19 still 47% even after adjusting for skills transfers).