Such reflection served to promote discussion on the adequacy of financial markets’ regulation to withstand crises. Two important shortfalls in the regulatory framework were identified. First, the banking legislation established clear rules for the orderly entry of new participants in the market but did not define the mandatory requirements for an orderly exit for the troubled market participants. Now in the post-crisis period, almost everyone agrees that, in the absence of a resolution regime, in order for a smooth and orderly exit of problematic banks, governments were forced to use public funds. Second, as a result of the high level of financial integration internal shocks in a given country were transmitted across borders to other countries, transforming them into a global issue. The post-crisis analysis motivated the European Union to assess issues related to banks’ recovery and resolution, and consider strengthening the existing cross-border cooperation, to reflect better the actual integration of financial markets. Today, the banking union in Europe has introduced harmonized rules about resolution throughout the European Union, and a unified application for the euro area. More specifically, the legislation of the European Union has activated the European Bank Recovery and Resolution Directive (BRRD) for all member countries and has established the Single Resolution Mechanism (SRM) in the euro area, as well. The BRRD creates such instruments for a preventive recovery and early intervention in a bank, designed to avoid the failure of a bank, as well as facilitate an orderly resolution when banks are failing, to protect the public interest.

Three areas in particular are discussed: •  Data and Communications: to allow a better understanding of network dynamics following a shock and thereby inform public communications. For example, learning from epidemiological experience in dealing with SARs, or from macroeconomic experience after the Great Depression, putting in place a system to map the global financial network and communicate to the public about its dynamics;  •  Regulation: to ensure appropriate control of the damaging network consequences of the failure of large, interconnected institutions. For example learning from experience in epidemiology by seeking actively to vaccinate the “super-spreaders” to avert financial contagion; and  •  Restructuring: to ensure the financial network is structured so as to reduce the chances of future systemic collapse. For example, learning from experience with engineering networks through more widespread implementation of central counterparties and intra-system netting arrangements, which reduce the financial network’s dimensionality and complexity. Networks and finance are not complete strangers. There has been growing interest among network theorists in applying their techniques to financial phenomena over the past few years. For example, network techniques have already been applied extensively to the  2  BIS Review 53/2009  dynamics of payment systems and inter-bank networks. 1 But the financial crisis of the past two years provides both a greater body of evidence, and a stronger incentive, to apply the lessons from other network disciplines to the pressing problems facing financial policymakers today.