between forms of subordinated debt contracts which will bear losses in resolution first and deposit and other senior funding contracts on the liabilities side of the bank balance sheet. this may seem like a very simple point, but past arrangements meant it was unclear, and the moral of the painful story is “ don ’ t leave the providers of debt funding in any doubt about their creditor status. ” the lack of clarity about the instruments on the liabilities side of bank balance sheets and the order and mechanisms by which they would absorb losses was an important issue in the crisis. looking ahead, clear disclosure of creditor hierarchies at a legal entity level will be a critical component of the resolution regime, so that all creditors know where they stand before resolution occurs. let ’ s turn now to the other side of a bank ’ s balance sheet, the assets side. the massive increase in balance sheet size pre - crisis accompanied what came to be known as the “ search for yield ”, which could be re - named the “ search for risk which turns out to be unsustainable ”. on the banking, as opposed to trading book side of the assets of major banks, the search for yield often took the form of loans which included too much equity - like bis central bankers ’ speeches risk because the equity stakes of the owners of the companies were too small. this was not equities themselves, but rather equity components embedded in loans. commercial property lending in the uk is a good example, as it was in ireland. commercial property prices in the uk have over time tended to vary more than, say, prime residential house prices and that points to a need for larger equity - like component of funding to absorb losses from that variability. the search for yield however meant that banks were more happy to lend against equity risk of this sort. since the crisis in the uk we have seen a shift in commercial property finance towards a larger share coming from funds which explicitly take this equity - like risk. this strikes me as a good thing in terms of reducing the exposure to such risks of banks, whose liabilities tend more to be in the form of deposits. i sometimes hear comments that banks are losing the race to new innovations such as peerto - peer lending for the supply of what i would describe as finance with a heavy equity component. i think we need both in a well organised financial system because as banks have a predominance of deposit liabilities with the characteristics i described earlier they are not on

. first, greater clarity on liabilities should encourage more appropriate matching with assets in a way that was absent in the run - up to the crisis – some assets suit a deposit contract, some do not. second, resolving failed banks without the use of public money depends on a very strong delineation of bank liabilities to make clear what can be bailed in. this is a key to unlocking the answer to the too big to fail problem. third, as the bank of england announced in december, we are now in a position to clarify the expected steady state regime for bank capital and because we can distinguish going concern capital bis central bankers ’ speeches and thus loss absorbency from resolution or gone concern absorbency, we can put a lower number on the former. clarity is therefore a good thing when it comes to balance sheets. put like that, the wonder is that so much was unclear in the previous system. and, finally, the same principle holds for assets under management. make sure investors know the characteristics of the assets they hold and that they are not promised access to their investment on terms or with a promise ( explicit or implicit ) that is out of line with what financial markets could deliver. thank you. bis central bankers ’ speeches