While additional study of the effects of large-scale asset purchase (LSAP) programs should be encouraged—as it furthers our understanding of the use of these unconventional monetary policy tools—the paper’s findings do not, in my mind, invalidate the use of LSAPs when the Federal Reserve is operating at or close to the zero lower bound for shortterm interest rates. That is the key issue—not the magnitude of the effects of LSAPs or whether short-term interest rates should be the primary tool of monetary policy. On the latter point, which is consistent with the FOMC’s statements about policy normalization, I see broad agreement. Concluding that LSAPs are less powerful than suggested by some of the estimates from the event study literature does not imply that there is no role for LSAPs at the zero lower bound. In such circumstances, LSAPs can be used to provide additional monetary accommodation by depressing bond term premia and the spread between agency mortgage-backed securities (MBS) and Treasury securities, as well as by strengthening the credibility of forward guidance on the path of short-term interest rates. This can provide support to asset values more generally and make financial conditions more accommodative. Thus, discarding such a tool or ruling out its use seems counterproductive for two reasons. First, to the extent that such a tool can provide accommodation, ruling out its use would raise the risks of insufficient monetary policy accommodation when interest rates are pinned at the zero lower bound. Second, expectations matter.

The latter, where losses flow to the top of a financial group, are associated with Single-Point-of-Entry resolutions.3 The choice of how equity and gone-concern loss-absorbing capacity should be distributed across a group is, therefore, part and parcel of deciding its preferred resolution strategy. That was not understood as international banking policy was developed over recent decades, and sets up my next issue. Reconciling the Basel Concordat, the Core Principles of Banking Supervision, the Capital Accord, and resolution policy The development of international policy on resolution is, arguably, exposing an underlying need to reconcile the provisions of various international agreements in banking regulation and supervision. There are three that are relevant: the Concordat, the Core Principles and the Capital Accord. Bear with me for a moment while I set up the point I want to make. The Concordat4 establishes the division of labour amongst home and host authorities – the foundation stone of international co-operation amongst bank supervisors. First agreed in 1975 in the wake of the failure Herstatt, updated after Banco Ambrosiano in 1983 and again in 1992 following the closure of BCCI, the Concordat was most recently spring cleaned in 1996. It is premised upon “consolidated supervision” of a banking group as a whole. What that means is that so long as the host supervisors of local outlets of an international banking group are satisfied that the home supervisor is capable of supervising the consolidated group as a whole, the distribution of capital resources across the group, both within and across jurisdictions, can be unfettered.