The major elements of cost are the considerable expense of insolvency, the substantial loss of value through any excess, “fire sale” markdown of the value of assets and business lines and the externalities of a large failure to other firms, their stakeholders and market participants in the form of knock-on and psychological effects. When the observation is made that a financial institution is not resolvable or is too big to fail, it represents a judgment that the financial costs and externalities of failure are unacceptable. The desire to improve the resolution process for cross-border financial firms is widely shared, but how we should we judge progress? The success of private and public sector actions, such as those recommended by the CBRG, to improve the resolution of systemically important firms can perhaps be gauged by the extent to which resolution costs are reduced. We might further gauge progress against additional expectations, such as the absence of taxpayer support of the resolution process, the efficiency of the process (to the extent it is not captured in resolution costs) and the equitable and consistent treatment of stakeholders. To improve the resolution process, the CBRG’s first recommendation is that national authorities have appropriate tools to deal with all types of financial institutions in difficulties so that an orderly resolution can be achieved. The recommendation specifically mentions power to create bridge financial institutions, transfer assets, liabilities and business operations to others and to resolve claims.

I want to bring out that they are, nevertheless, integral to financial stability authorities. Under each of those headings, I shall raise a few points that have not featured prominently in recent debates. To be clear, I shall not attempt to cover all important markets. And I shall not address important questions about the role of securities regulators in crisis management, circuit-breakers, or counter-cyclical policies such as varying minimum margin requirements as conditions change. Moreover, I must stress that I speak only for myself. The issuance and distribution of securities Toxic ABS and CDOs – cash as well as “synthetic” or derivative versions – were at the centre of the crisis. They were not toxic for the financial system because they were risky or, indeed, because many underlying household and business borrowers became overindebted. Markets can price (and ration) risk they comprehend (if appropriate requiring yields that inhibit issuance). They were toxic because they were mispriced; and they were mispriced in part because they were misunderstood. Through the consequent enticements to leverage, that misunderstanding engulfed banks, asset managers, credit insurers and, eventually, the authorities. Both dealer-financing markets and end-user markets closed. BIS central bankers’ speeches  3  Listing authorities and securities regulation And yet all of those securities were issued and/or distributed under the securities laws and policies of developed countries or financial centres with elaborate securities market regulation. Prospectuses or other documentation had to meet regulatory or listing requirements.