to countries ’ particular circumstances. in some, the financial authorities might decide the scale of the haircuts / conversions ; perhaps in other countries, it might be thought that a senior judge should decide on the basis of an application by the financial authorities. it is also worth saying that maintaining an lcfi in business through such means would neither preclude nor of itself require regulatory action against management or, once the crisis had passed, to wind - down parts or all of the business over time. nor would a regime of the broad kind i have sketched exclude restructuring banking groups into functional subsidiaries, with different resolution tools applied to, say, deposittaking / payments ; custody and global cash management ; the business of illiquid lending to small and medium - sized enterprises and households ; trading / derivatives business or wholesale banking more generally. that would not be inconsistent with reducing the number of legal entities in lcfi groups, perhaps by an order of magnitude. the current fsbsponsored work to develop “ recovery and resolution plans ” for the top 25 or so lcfis is designed to identify where those kind of steps are warranted. resolution could, therefore, take its place alongside structure and regulation as one of the key elements of a reform package to strengthen the global financial system. a super - special resolution regime along those lines would, on the face of it, go quite a long way towards reintroducing market discipline – by putting uninsured creditors at risk even in systemic situations. i am not innocent enough in the ways of the market to think that it wouldn ’ t affect behaviour. of course, it would lead to changes, over time, in the capital structure of investment banking operations. proper transitional periods would be needed. i suggest that it is worth debating. maybe there is a fatal flaw. we should certainly search for the flaws. but if we do not find a way of resolving massive and complex trading books, the regulation of the business would probably have to be fiercer than otherwise in order to crush the probability of failure. resolution is a way of coping with failure. key voices are the nonbank financial sector and the corporate treasurers who finance the banking system. what would they get out of it? they might benefit from avoiding the risk that the authorities choose to liquidate a lcfi they had thought was too big to fail, with the depletion of value that entails ; think of lehman. they would, in effect, be trading off losses in one

paper ” and tucker p m w ( 2009e ), “ the debate on financial system resilience : macroprudential instruments ” at the barclays annual lecture in london. a more cooperative approach to cross - border resolution. there would be one, global resolution, led by the home authority. but pure universalism also faces major obstacles. first, it would imply a surrender of national sovereignty – replacing it with pre - defined and enforceable rules that determined the roles of different authorities in different jurisdictions. second, unless steps were taken to rule out the need for sovereign capital of last resort operations 4, it might well need to be accompanied by an ex ante burden - sharing mechanism, to facilitate a sharing of the costs of resolution across the jurisdictions in which a bank had activities. in theory, that could be addressed by the main home and host authorities of each lcfi agreeing a set of binding principles to govern the distribution of the costs of a universal resolution across jurisdictions. an alternative would be to design a single resolution regime for all lcfis, to be implemented along universal lines by a supranational resolution authority. but would countries be prepared to tolerate the loss of fiscal independence and the overturning of national insolvency laws that this model would entail, especially if it required governments to commit to recompense the agency for unlimited amounts in the future? that is most definitely not a question for central bankers. ( iii ) modified universalism pure territoriality and pure universalism are corner solutions. we live in a world where some countries are closer to one corner, others closer to the other. some have suggested that an intermediate solution might be feasible. this would involve “ territorial ” countries deciding to resolve financial institutions headquartered in their own jurisdictions on a universal basis. ( a possible example of this approach in the recent crisis was the fdic ’ s resolution of united commercial bank, which involved a “ purchase and assumption ” 5 that extended to the chinese subsidiary and the hong kong branch following coordination amongst the authorities in the us, china and hong kong. ) a “ modified ” form of universalism would involve host authorities choosing to defer to and cooperate with a resolution brought by the home country authorities, provided that certain conditions held. separate insolvency proceedings might be employed by host countries, but allowing the proceeds to be remitted to the home country, “ lead ” resolution. variations might be needed for subsidiaries and branches. subsidiaries are distinct legal entities,