So summing up, as with the Concordat, a country’s prudential regime could be judged as complying with the Core Principles even though it does not ensure that the distribution of capital across a banking group leaves its individual entities adequately capitalised. Finally, the Capital Accord7 – now in its third incarnation – applies to banking groups on a consolidated basis (or at a sub-consolidated basis for different tiers of a group). The Accord gives jurisdictions an option to apply capital requirements on a solo-basis to individual legal entities as an alternative to applying the requirements to consolidated groups of legal entities8, but there is no requirement to exercise that option. Again, then, there is no hard rule that ensures a sensible distribution of capital across individual entities within a group. If you cannot fit all that together, you can be excused! Here’s an attempt to make sense of it. There appears to be a disconnect between the Concordat (consolidated supervision); the Core Principles (both consolidated and solo perspective recognised as important, but no mandated solo capital requirements); and the Capital Accord (consolidated and sub-consolidated, with solo subject to deductions allowed but not required). Or, put another way, each of the three BCBS documents does an important job but none of them addresses the distribution of capital across a group. That is a gap. Do not assume that this is a theoretical point. It is one reason there have been attempts by regulators to shore up the financial soundness of local subsidiaries during the crisis.

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.