fdic, subject to important creditor safeguards, to nullify the direct - and cross - default rights of counterparties can halt the disruptive, uncertainty - driven race to seize and liquidate a firm ’ s assets immediately upon its entrance into a title ii resolution. the fdic authority includes the opportunity to decide whether it wants to transfer qualified financial contracts ( qfcs ) to a bridge financial company or another solvent company during a one - day statutory stay of the contractual rights of counterparties of the firm being resolved. as i will discuss later, this authority is not without limitations, particularly in a cross - border resolution, but it is a critical tool for an effective resolution of a financial firm with complex portfolios of financial contracts. while title ii establishes a special resolution mechanism and grants the fdic powers responsive to the special challenges posed by the failure of large financial institutions, it provides only a legal framework, not an elaborated description of how these powers would be used to resolve a systemically important financial firm. moreover, the very large financial firms that are the most likely subjects of a title ii proceeding have extensive cross - border activities, and thus implicate the legal systems of other countries. thus, for orderly liquidation authority to be effective in containing too - big - to - fail concerns and supporting financial stability, the statutory provisions must be supplemented with administrative planning by the fdic and with consistent measures in other jurisdictions. when a firm is continuing operations under the reorganization provisions of chapter 11 of the bankruptcy code, or even doing so temporarily under the liquidation provisions of chapter 7, it may, without court approval, incur unsecured debts for which creditors have priority over other unsecured lenders for normal operational expenses ; with the approval of the court, the firm may also incur debt for other expenses. as explained above, repayment of some existing short - term creditors may be necessary to maintain the value of a financial firm, something not generally considered a normal operating expense of the sort for which dip financing is routinely available under current bankruptcy law. bis central bankers ’ speeches developing a clear, credible approach to resolution it is important to develop and articulate a credible approach to such a resolution proceeding, for at least two reasons. first, unless creditors and counterparties have well - grounded expectations as to how they will be treated in a resolution setting, they may need to charge a premium to compensate for the additional uncertainty associated with the disposition of their claims, which can lead to a mis

as well as the safety and soundness of each individual institution and system. indeed, the crisis has demonstrated that a too - narrow focus on the safety and soundness of individual institutions or systems can result in a failure to detect and thwart emerging threats to financial stability that cut across many firms or markets. a critical building block of a successful systemic, or macroprudential, approach to supervision is a requirement that all systemically important financial firms be subject to consolidated supervision. that is, one regulator must be responsible and able to review the full range of activities of such firms. before the recent financial crisis, many major financial firms – including investment banks like bear stearns and lehman brothers and large insurance companies like american international group – were able to avoid robust comprehensive supervision. in the future, all firms that present systemic risks – regardless of whether they happen to own an insured depository institution – must be subject to a common, comprehensive framework of supervision and regulation. the financial reform bills that were passed in both the house and the senate would expand and strengthen consolidated supervision of firms whose failure would pose risks to the financial system. the report recommends that a single systemic regulator be assigned responsibility for overseeing the health of the overall financial system and, in particular, that this duty be assigned to the central bank. we agree that the central bank – in the united states, the federal reserve – should be extensively involved in the collective effort to promote financial stability. the reasons for this involvement include the central bank ’ s breadth of expertise and its traditional roles in promoting financial stability and serving as a backstop liquidity provider to the financial system. however, giving all macroprudential responsibilities to a single agency risks creating regulatory blind spots, as – in the united states, at least – the skills and experience needed to oversee the many parts of our complex financial system are distributed across a number of regulatory agencies. rather than concentrating all macroprudential authorities in a single agency, we prefer that all regulators be required to routinely factor macroprudential considerations into their supervision, thus helping ensure that risks to financial stability can be addressed wherever they arise. for similar reasons, we have supported the creation of a systemic risk council made up of the financial supervisors. such a council would provide a forum for agencies with differing responsibilities and perspectives to share information and approaches, and would facilitate identification and mitigation of emerging threats to financial stability. at the same time, consistent with the report ’ s recommendation that the lines of accountability for