top - level operating company. the us and uk have been working together very constructively in planning how to operationalise that strategy ; and if we continue to make progress i hope that we will be able to say more about it over the next few months. imagine that a large, complex, global firm – just one legal entity for the moment – has 20 lines of business, each the same size, which is to say using the same amount of balance sheet and capital. imagine it is 50 times levered. now imagine that one of those lines of business is completely toxic, worthless. the firm is insolvent, bankrupt. unless it can be resolved, it must cease trading and go into insolvent liquidation. but, in this stylized example, only a single line of business is toxic ; the other 19 are fine. in other words, the franchise has value. in the non - financial corporate sector, there are established tools for this. the remedy would be a negotiated reconstruction of the firm ’ s capital structure, writing off the equity and partially converting debt claims into new equity. in the us, that goes by the name of chapter xi. in banking, which is subject to depositor and counterparty runs, there is not time for a process involving negotiations between the different classes of creditors and shareholders under the jurisdiction of the courts. and the public policy priority is the stability of the system, not only the welfare of creditors. an administrative agency needs to make and execute some rapid judgments. that is precisely what so - called bail - in via resolution is about. the essential difference from other resolution tools is, as i have said, that losses are applied ex ante, up front rather than at the end of a process of running down the assets associated with “ non - critical ” functions. i have been making a simplifying assumption : one legal entity. now imagine a cross - border group with subsidiaries in many jurisdictions and with a holding company. under the provisions of the fsb resolution standard, recapitalisation through reconstruction of liabilities can also prospectively cut through a number of the long - standing impediments to resolution stemming from conflicts between home and host country insolvency laws ; in other words, the cross - border problem. if the bail - in i have described were executed at the level of such a banking group ’ s holding company, there should in principle be no need to trigger default clauses in subsidiaries around the world that are not themselves affected by

( or containing disorder ). a way of cutting through that would be to bail in the deposit insurer. rather than the deposit insurer waiting until the end of the process of a potentially destructive realisation of the assets, it would hear up front how much it had lost. in the scenarios i have described, its losses should be smaller that way. that approach could, if necessary, be applied in different regions to different distressed subsidiaries of the group. in the world of real banks, the firms have uninsured as well as insured deposit liabilities, and they typically combine deposit taking with some bond issuance. that means that, after equity and subordinated debt holders were extinguished, losses would be shared amongst the dis and those bonds etc that could be bailed - in. whether they got bailed - in together or in sequence ( bonds first ) would depend on whether a jurisdiction operated depositor preference in its insolvency regime. but i must stress that in no way does any of this dilute the protection assured to insured deposits. it does transfer losses to the surviving parts of the local banking system. but so do other resolution techniques, and liquidation would entail much bigger losses for the deposit insurer and thus for other banks. there is much work to be done on planning how to operationalise that kind of resolution strategy, but it is worth doing. the fsb work programme this brings me, briefly, to the fsb work programme for 2012 and into 2013. there will be a preliminary peer review of the extent to which jurisdictions ’ resolution regimes comply with the fsb standard. that will be followed by more exacting examinations, led by the imf and world bank, once an assessment methodology for the resolution key attributes is complete. meanwhile, authorities are enjoined to produce assessments of resolvability of global sifis and the obstacles in their way ; firm - specific agreements for co - operation amongst home and host resolution agencies and supervisors ; and resolution plans by the end of this year. each of those requires a conception of a high - level resolution strategy for individual firms agreed amongst top officials of home and key host authorities. and the development of those strategies will inform the information that the authorities need from firms. i have sketched in very general terms two broad kinds of resolution strategy, potentially appropriate for different types of global sifi. in other cases, where a business is rotten through and through, a more “ traditional ” break - up