Were that to happen, the breakdown in cooperation between sovereign states could all too easily give encouragement to those around the world who would like to use protectionist measures to shield their countries from the winds of global trade. If the international monetary and financial system relies, as it has since at least the collapse of Bretton Woods forty odd years ago, on the private banking system to supply the cross-border liquidity needed to underpin expansion of world trade, then we must ensure that the international banking system is safe and sound. That cannot rest solely on prophylactic prudential supervision. It must include effective arrangements for cross-border resolution. That has been an architectural faultline in the IMFS for decades.3 Third, across the world the operational independence of prudential supervisors4 from shortterm politics depends on credible and effective resolution regimes. Unless we can handle the failure of banks and other financial firms in an orderly way, it is hard for governments to tie themselves to the mast of eschewing the temptations of ‘bailout’ using taxpayer’s money. That would give them an interest in the day-to-day operation of prudential supervision which, as experience in some countries shows, all too easily morphs into attempts to promote and protect ‘national’ champions; and to operate supervisory policy for short-term gain rather than in the interests of medium-term stability. In any countries where that persists, we should expect higher government bond yields than otherwise, reflecting the state’s contingent liability for the banking sector.

To a greater extent than with SPE, a MPE resolution can be impeded by financial connections between different parts of the group, whether arising from intergroup loans or from business lines, such as global payment services, that are integrated but spread across different legal entities. In supporting MPE as a preferred strategy, the home and key host resolution authorities will have to satisfy themselves robustly that such interlinkages would not impede resolution via splitting up the group. In practice, that will mean reducing intragroup exposures. Operational dependencies between different parts of the group are another priority where MPE is the preferred strategy. For example, some global commercial banking groups seek to exploit economies of scale and scope by drawing on centralised operational services (in particular related to IT and processing). MPE does not work unless those arrangements can survive the breakup of the group. At the very least, that entails service-level agreements and  12  FSB Key Attributes paragraph 7.4: “National laws and regulations should not discriminate against creditors on the basis of their nationality, the location of their claim or the jurisdiction where it is payable. The treatment of creditors and ranking in insolvency should be transparent and properly disclosed to depositors, insurance policy holders and other creditors.”  13  See FDIC and Bank of England (2012), Resolving Globally Active, Systemically Important, Financial Institutions. 8  BIS central bankers’ speeches  transitional support arrangements being effected via enforceable contracts.