Also on the policy response to the crisis, we have invested in stress-testing to examine how the balance sheet performs under stress, and thus establish whether the bank is robust in terms of its loss absorbency to extreme but plausible outcomes. This is a central part of what we describe as our forward looking judgemental approach to supervision. I have not so far mentioned one other very important part of the post-crisis reform package, namely ensuring that banks can be resolved if they fail. This should be done without recourse to public funds or the disruption of the critical economic functions provided by banks, such as continuity of access to deposits. At the heart of the resolution reforms is the concept of bail-in, which is that private creditors of a bank absorb the cost and provide the new equity to sustain the provision of these critical functions in the event that it suffers large losses that cause failure. There is nothing radical about the concept of bail-in, which is a debt-equity conversion should a trigger event occur. That is consistent with well-established principles of company restructuring. But with banks it has to happen very quickly if the trigger event that the bank is no longer viable occurs. We cannot wait for a lengthy bankruptcy process. TLAC (Total Loss Absorbing Capacity) or MREL (Minimum Requirements on Eligible Liabilities) are used to describe the specific liabilities which banks will be required to maintain to ensure there are enough liabilities which can feasibly and credibly be converted.

This view is traditionally associated with the economic historian Charles P. Kindleberger. His 1973 book, The World in Depression 1929–1939, proved a catalyst for what eventually became known as hegemonic stability theory. For a brief discussion, see The Economist (2013), “Railroads and hegemons”, 10 October. 4. Georgieva, K. (2023), “Confronting Fragmentation Where It Matters Most: Trade, Debt, and Climate Action”, 16 January. See also Aiyar, S. et al. (2023), “Geoeconomic Fragmentation and the Future of Multilateralism”, IMF Staff Discussion Notes, SDN/ 2023/001, 15 January. 5. The White House (2022), “Fact sheet: How the Inflation Reduction Act Will Help Small Businesses”, 12 September. 6. For example, one recent survey finds that the share of firms planning to regionalise their supply chain rose from 25% in April 2021 to 45% in April 2022. See McKinsey (2022), “Taking the pulse of shifting supply chains”, 26 August. 7. International Energy Agency (2022), “The Role of Critical Minerals in Clean Energy Transitions”, World Energy Outlook Special Report, Revised Version, March. 8. Macron, E. and Scholz, O. (2023), “Deutschland und Frankreich – Unser Europa für die nächste Generation gestalten”, Frankfurter Allgemeine Zeitung, 22 January. 9. European Commission, “EU position in world trade”. 10. European Commission (2021), “Strategy for Financing the Transition to a Sustainable Economy”, COM/2021/390 final, 6 July. 11. World Economic Forum (2022), “Digital solutions can reduce global emissions by up to 20%”, 23 May. 12. De Haas, R. and Popov, A. (2019), “Finance and carbon emissions”, Working Paper Series, No 2318, ECB, September; Popov, A.