We have made very significant progress on a resolution regime for the 21st century. The powers, international standards and institutions are all in place. The authorities and the banking system have strong and common incentives to complete the implementation. It is in all our interests that we do so. 14  8  See Carney (2014). BIS central bankers’ speeches  References Afonso, G, Santos, J A, and Traina, J (2014) ‘Do 'Too-Big-To-Fail' Banks Take on More Risk?’, Federal Reserve Bank of New York Economic Policy Review 20(2). Bank of England (2015) ‘The Bank of England’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL)’, Consultation on a proposed Statement of Policy, available at http://www.bankofengland.co.uk/financialstability/Documents/resolution/mrelconsultation2015 .pdf. Brooke M, Bush O, Edwards R, Ellis J, Francis B, Harimohan, R, Neiss, K and Siegert, C (2015) ‘Measuring the Macroeconomic Costs and Benefits of Higher UK Bank Capital Requirements’, Financial Stability Paper 35. Button, R, Knott, S, Macmanus, C and Willison, M (2015) ‘Desperate adventurers and men of straw: the failure of City of Glasgow Bank and its enduring impact on the UK banking system’, Bank of England Quarterly Bulletin Q1. Carney, M (2014) ‘The future of financial reform’, Monetary Authority of Singapore Lecture. Financial Stability Board (2015) ‘FSB issues final Total Loss-Absorbing Capacity standard for global systemically important banks’, Press release, available at http://www.fsb.org/2015/11/tlac-press-release/. Financial Stability Board (2015) ‘Assessing the economic costs and benefits of TLAC implementation’. Herring, R J and Carmassi, J (2014) ‘Complexity and systemic risk’, The Oxford Handbook of Banking, 77.

In the UK, the Bank has to prepare resolution plans for around 200 banks and building societies, based on information provided by the firms. But it is a necessary business. Non-financial firms can fail and go into insolvency without widespread damage to the economy and financial system. Banks, once they get above a certain size, cannot. (iv) Loss absorbency The fourth plank is to ensure in advance that banks are financed in a way that supports resolution. This is perhaps the most difficult part of the puzzle as it goes to the heart of that ever difficult question of ‘who pays?’ Clearly, the shareholders stand first in the line. And by strengthening bank capital we have ensured that the shareholders can absorb a much greater amount of loss.10 But, unless we go back to the concept of unlimited liability we must assume that if a bank is unable to continue operating, the shareholders’ capital has effectively been exhausted. And clearly, the insured depositors – whose losses are covered by the rest of the industry – stand last in line. In between, there is an army of bank creditors, ranging from unprotected depositors, corporates, interbank liabilities, repos, and derivatives, to trade creditors, pension liabilities, contingent liabilities, tax liabilities, and, of course, the unsecured wholesale funders of the bank who have bought longer-term bank debt. 9  See Herring and Carmassi (2014). 10  See Brooke at el (2015).