But I think that it is also clear that in some severe situations, a different framework will need to be applied. In case of an epidemic disease, such as the avian flu, there may be a need to direct those infected to separate hospitals. And it may be necessary to establish an order of priority for the allocation of the scarce medical resources. One where the guiding principle may be the survival of the society as a whole. It may also be the case that the crisis regulations clash with the normal regulations. For instance, you are normally not entitled to take a sick day if you are actually healthy. Now, even healthy people may be asked to leave their offices to avoid the disease from spreading, while the key employees may be asked to go to work to keep the operations running. When the principles clash, it will be vital for society that the ones needed to contain the epidemic will prevail. And if that special framework is not already in place, the politicians will need to get involved. Clearly, a bank failure cannot be compared to a serious injury or sickness in terms of personal suffering. But it can be an event which will make many people’s lives very difficult. And a systemic banking crisis, like an epidemic, may stall the functioning of our entire economies. It is therefore important to be able to deal with an ordinary bank failure as well as a more serious systemic crisis.
This procedure would simply be too slow, and would not take into account the need to keep the operations running in order to maintain the functioning of the financial system. With creditors insulated against losses by the guarantee, and with the formal insolvency regime assessed to be inappropriate, we needed to find another way to ensure that losses  BIS Review 62/2008  3  for which the shareholders were responsible would not fall on the tax-payers. In order to secure this, we needed to take control of the banks concerned before capital was completely eroded. Needless to say, we found ourselves in a rather poor bargaining position against the shareholders. Fortunately, a Bank Support Act, laying out the principles for the possible actions, could be implemented quite swiftly. A special crisis management authority was also set up. Inspired by the US model, where the authorities can take control of a bank when capital falls below a certain level, this temporary crisis legislation gave the government the right to take over the shares in undercapitalised banks. The Bank Support Act also made it possible to tie conditions to the actual use of the guarantee. Thus, the main rule was that any financial support given directly to a bank would result in a proportional dilution of the original shareholders’ holdings. The Bank Support Act also laid the basis for arranging private takeovers where possible. And, not least, for the orderly winding up of unviable banks.