In particular, we need to define a regulatory framework addressing the risks posed by large and complex financial institutions, and to discuss possible measures aimed to ensure a smooth winding-up of ailing systemically important financial institutions. It is crucial that a consistent framework is agreed at international level to avoid conflicting national regimes applied to multinational institutions and regulatory arbitrage. In this context, I strongly support the current work being carried out by the Financial Stability Board and the Basel Committee. 4  BIS Review 58/2010
I would like to draw attention to three main aspects of ongoing work in this area: First, stricter capital adequacy and liquidity coverage standards are in the offing. Higher and better-quality capital will increase banks’ resilience to pronounced fluctuations in the economy without their having to tighten lending abruptly. Second, the new framework includes macroprudential tools. One such measure is the countercyclical capital buffer. Banks may be subject to additional capital requirements if credit growth in the wider economy is excessive. This will smooth out lending growth and better equip banks to bear potential losses during downturns. Third, the authorities must acquire tools that allow banks to be wound up in an orderly manner. The structure of banking groups should be transparent, and thus enable differentiated government interventions in case of a crisis. Plans must be drawn up for the recovery or resolution of banks in the event of difficulties. Owners and creditors – not taxpayers – must bear the losses. The interest rate on banks’ funding will then reflect the risk they take rather than an implicit government guarantee. This will in itself have a preventive effect. Politicians have the overriding responsibility for financial stability. It can be demanding to restrain credit growth in times of strong optimism and confidence in the future. Well defined mandates and a clear delegation of responsibility in the field of monetary policy has worked well. Similarly, the legal authority to implement macroprudential measures to safeguard financial stability should be delegated.