Such factors might be compounded by other differences between the corporate and sovereign frameworks, including the lack of collateral (or the means to acquire it) underlying sovereign debt, and the greater uncertainties in the sovereign case on issues such as creditor seniority, assessing ongoing debt sustainability and burden sharing. This latter point also raises the thorny issue of Paris Club comparability, which could be regarded as imposing a form of involuntary PSI on the private creditors. The sovereign case will also generally be subject to political factors that are simply not present in the corporate case. The uncertainties surrounding these questions explain why progress has been slow in devising a framework governing sovereign workouts that is capable of commanding widespread support. I believe there is great scope in developing such a framework to draw heavily on the principles governing corporate and financial sector restructurings, where they are relevant, without compromising the distinct features of sovereign workouts. I am pleased to see that this seems to be the approach being taken by the various private sector groups, and I wish them well in their efforts. Conclusion Let me try to bring my remarks to some conclusion. In a financial system that has become ever more global and inter-connected, central banking increasingly involves spotting linkages between developments in different countries, sectors or markets. Usually this is a matter of identifying and dealing with threats before they emerge. But there is also an opportunity to take ideas developed to address one set of problems and apply them elsewhere.

They are thus peculiarly vulnerable to a loss of confidence, individually and as a group. The potential for contagion – the threat that trouble in one bank will result in a run on others that might endanger the system as a whole – makes monitoring banks’ solvency and liquidity a core activity for central banks. Whether responsible day-to-day for supervision or not, central banks still need to stand ready to act as lender of last resort. However, any such operation must be carefully considered. Any decision to support an institution, particularly in circumstances of underlying insolvency, creates a moral hazard that undermines market discipline. Designing effective arrangements for restructuring financial institutions is thus a particular challenge – there is a need to act quickly and finally; intermediate arrangements are much more difficult to sustain. The challenge is complicated by the degree to which financial markets are now global and financial groups operate in a number of different jurisdictions. The G30 report on international financial insolvencies, published in March 1998, raised several themes that are rather similar to those relating to cross-border corporate insolvencies. In particular, it emphasised that a close degree of international co-operation was necessary to prevent the disorderly failure of a bank or insurance company. Effective co-operation would help to bring about a reorganisation or if necessary an orderly disposal of assets, and avoid the delays, uncertainties and loss of value often associated with formal legal proceedings.