This work goes under the name of T-LAC, or total loss absorbing capacity. I find it reasonable to believe that there will be an agreement on a consultative document to be published in the context of the G20 summit in Brisbane. So, viewed against the broad regulatory reform agenda put in place as a reaction to the crisis, it is fair to say that we are indeed seeing some light at the end of the tunnel. The main pieces are starting to come in place. Unfortunately, concluding the post crisis reform agenda does not mean that we can lie down, relax and declare “mission accomplished”. We need to look closely at the regulatory framework, remind ourselves of the reasons we put these measures in place, and ask whether they are delivering the right outcomes. And here I would like to focus on the interlinked issues of implementation and calibration. Let me start with some reflections on implementation. For some time now, the Basel Committee has engaged in the process of monitoring and assessing how members implement what has been agreed by the Committee. The assessment work is carried out on a jurisdictional as well as on a thematic basis. In the jurisdictional assessment we look at how Committee members have implemented the Basel standard – determining whether or not it is a fair reflection of the Basel III  6  4  Source: Shareholder Report on UBS’ Write-Downs. BIS central bankers’ speeches  requirements.
This worked fine during the Great Moderation, but unfortunately with the collapse of Lehman Brothers another old truism suddenly came to life: “markets function the worst when you need them the most”. Against this background, it is quite embarrassing that so few could see the crisis coming. From a regulatory point of view, all the ingredients were there, or rather they were lacking. And this is the first point I want to make – the regulatory framework was unsatisfactory and becoming more so the more complex the financial system became. Then, turning to my second point, which is: The costs of financial crises are huge. This is true in general, but especially so for the recent one. For example, according to a recent study by  1  2  The figure SEK 17,000 =1,000,000*50%*3,4%, where 3,4% is the implied minimum core Tier 1 capital requirement under Basel I. The risk-weight for mortgages was 50% during this period. Under Basel II the implied minimum core Tier 1 capital requirement fell from 3,4% to 2% of risk-weighted assets, and was 2% in 2011–2012 when banks’ internal average risk weights for mortgages was 6%. SEK 1,200 SEK = 1,000,000*6%*2%. For more information see Sveriges Riksbank (2013) Financial Stability Report 2013:2, November, pp 21–24. BIS central bankers’ speeches  IMF economists, in a sample of countries representing just over 50% of world GDP, the total amount of government recapitalisation, asset purchases and guarantees during the period 2007–2011 amounted to nearly $ trillion.