so - called lending into arrears. such an approach would have to be designed to limit the moral hazard implications, incorporating strict conditionality. but it can be useful as a means of supporting a country as it takes remedial policy action through bridging finance. the issue of the standstill is, as many of you will know, controversial in the sovereign context, notwithstanding the fact that an informal standstill plays a crucial role in corporate workouts. voluntary debt rollover agreements with creditors or bond restructurings are, i believe, useful aspects of effective psi. but historical experience of involuntary sovereign debt standstills, in the form of payments suspensions, has not exactly been encouraging – the process has often been inefficient and inequitable. nevertheless, there are circumstances in a sovereign debt crisis where the immediate payments relief provided by a standstill may make an important contribution. an example would be where capital flight is pervasive because immediate policy adjustment is insufficient to bring about adequate voluntary private sector refinancing. in these circumstances, a standstill may realise the same advantages as in a corporate workout if it provides breathing space for remedial policy measures to be evaluated and put in place ; if it promotes creditor co - ordination and avoids unjustified creditor preference by treating creditors of the same type equitably ; and if it provides incentives to both creditors and debtors to reach a voluntary arrangement sooner rather than later. that is a lot of ifs and, as i have noted, a further provision is that if the standstill is supported by imf lending into arrears, it would need to be subject to strict conditionality. but again these conditions could usefully borrow from the corresponding provisions attached to corporate workout standstills. in both cases, the standstill should be subject to a strict time limit ; it should allow for a full release of all relevant information from debtor to creditors on a timely basis ; it should facilitate equitable treatment of similar types of creditors ( for example through the formation of bank creditor and bondholder committees ) ; it should provide for the seniority of any new money ; and above all it should deliver the rapid presentation of a restructuring plan to creditors. what this means is that any sovereign debt standstill would need to be orderly, efficient, equitable and expeditious. easier said than done, of course, especially given the fact that generally no single organisation represents the disparate

, equitable and transparent. financial sector restructurings let me turn now to my second area : financial sector restructurings, and i would like to start by noting the importance of confidence in the smooth running of a financial system. confidence is important in most industries, but it is at the heart of the financial industry. it is confidence that permits banks to operate, as a matter of course, with gearing many times capital, and with a maturity mismatch between their assets and liabilities, often concentrated in short - term or sight deposits. 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. if the financial institution does fail, in my view some of the provisions of the model law, especially those relating to judicial cross - border co - operation, are potentially helpful in providing a starting point for negotiations. there used to be a clear distinction between banks and securities houses, fund management and insurance, and financial institutions of different nationalities. restructuring could be to some extent contained within one market or one jurisdiction. now the distinctions between different markets and types of firm have become blurred and the increasing consolidation of