As such, continuous investment in human intellectual capital must be made to ensure the availability of best talents at all levels of the institution. Most importantly, strategic leadership at top management level is required to chart the strategic course and drive the banking institution towards attaining the highest standards of performance. The business environment remains dynamic, as such human resource management must adjust to support business strategies and realise improvements in business processes and systems by ensuring employees are equipped with the appropriate skills at all times. Such adjustment requires greater integration of personnel policies and practices with the corporate mission and goals, improvement in recruitment practices to attract the best talents and greater focus on human resource development. While qualification and skills of staff are critical elements, of greater importance is the ability to translate knowledge into enhancing the capabilities and excellence of the institution. Banking institutions will have to enhance the level of competencies and motivation on an ongoing basis, cultivate professionalism and the right attitude, and create and maintain a learning environment. For Islamic finance, the banking industry needs to continually promote human capital development and expertise to create a larger pool of experts and high calibre professionals in Islamic banking and finance. In particular, adequate resources should be allocated in building distinctive capabilities in the newly emerging areas such as private equity investments, real estate investments, private wealth and asset management.

This would make it possible to dismantle a systemically relevant institution in such a way that only those parts of the institution that are vital to the economy need to be saved. Only a limited bailout is then necessary, and this can then be rendered compatible with the functioning of a free market economy, if the capital necessary for maintaining the vital functions does not come from the taxpayer. Cocos: better incentives for bondholders A possible way to keep vital parts of banks functioning during crisis situations without involving the taxpayer is to have recourse to contingent convertible bonds or Cocos. These are bonds that are converted into equity if certain thresholds are reached. One such threshold may be a capital level corresponding to a de facto bankruptcy. With these “low-trigger” Cocos, the necessary capital for supporting the vital functions of the bank is forthcoming precisely when it is most needed, in other words, when the institution would not otherwise be viable as a going concern. The conceptual attractiveness of Cocos is that, in addition to recapitalising banks when the standard form of recapitalisation is unavailable,  11  Banks’ liquidity issues are not dealt with explicitly here. Clearly, weak bank liquidity profiles were at the core of the recent crisis. Liquidity measures represent a critical part of the Basel III regulatory framework. They are also part of the TBTF proposal. Another relevant issue relates to the maturity mismatch between a bank’s assets and liabilities. This is discussed in Hellwig (2008), among others.