an independent valuer determines that they have received less than they would have done if the bank had gone into insolvency without the srr being used. this is the “ no creditor worse off ” safeguard. the code of practice provides guidance on a number of areas, including how the srr objectives are to be achieved, factors guiding the choice between different tools, how to determine that it is not reasonably likely that action can be taken by or in respect of a bank to bring it into compliance with the fsa ’ s threshold conditions – ie how to determine that the srr should be triggered, how to determine the basis for calculating compensation where applicable, and the principles by which the bank of england should run a bridge bank. beyond all of these provisions, the banking liaison panel, whose members include industry bodies, lawyers and insolvency practitioners, in addition to hmt, the bank and fsa is responsible for providing advice on the wider effects of the resolution regime. the resolution of the dunfermline building society the first, and so far only, use of the resolution regime was for the dunfermline building society at the end of march. our tally of one is in sharp contrast to the us, where to date this year the fdic has carried out 124 resolutions of failing banks. the us does, of course, have a much less concentrated banking industry. dunfermline was, almost needless to say, a very instructive first case to handle. we achieved the key objective of a weekend transfer of depositors, branches and the head office, on this occasion to nationwide building society. we also managed to transfer the prime mortgage assets over the weekend, also to nationwide. this was an achievement, because necessarily the due diligence process is more complex for assets than deposit liabilities. the worse quality assets – mainly commercial property loans and bought - in mortgages – were placed into a building society special administration procedure ( the building society version of a bap ). but the social housing loan book ( for which dunfermline was the second largest provider in scotland ) and some associated deposits were taken into a bridge bank owned and run by the bank of england. we ran the bridge bank for three months while a sale process took place. dunfermline was therefore a case where we managed to use three of our tools in one go – the transfer powers, bap and a bridge bank. to give you an idea of the pressure

so the only advice we can give because we are not bis central bankers ’ speeches a political institution is to design and implement reforms that can restore growth and create jobs, that ’ s the only way to make politics more solid. you mentioned labour market policies. what specifically would you like to see? i ’ m just saying that we need continued implementation of what was agreed in the memorandum, nothing more. labour market activation policies? that kind of stuff? exactly. turning to the banks, how crucial is for them to bite the bullet and use their capital buffers to confront the question of loan losses? banks have to navigate between different constraints. i ’ m not saying that it ’ s an easy job to do. there are constraints. we ourselves as supervisor of the four largest banks, we would be the first to say that they needed some capital. they were right to replenish their capital. in one case this has been mandated by the stress test. it is being done. so strong capital is a protection in today ’ s world. it is mandatory, mandated by regulation and it is a protection and it is something that allows you to lend more contrary to what bankers sometimes suggest. strong capital is not money that is divested away from the economy. it ’ s quite the contrary, something that makes it possible to lend more. so they need strong capital but they also need to be forthcoming in addressing the non performing loan issue and sometimes there are different ways – depending on the kind of loan we are talking about – sometimes loan restructuring involves recognition of loan losses and then they have to be ready to use their p & l and their capital to do it, because it ’ s an investment, it ’ s an investment into the future, it ’ s not money being lost. it ’ s an investment to recreate capacity to lend into the economy. it ’ s also for the benefit of all so it has a social purpose. why in your view haven ’ t they done this? because it is complex. because in many cases discussions between borrowers and creditors are difficult and you don ’ t have an incentive to be forthcoming. sometimes you just want to wait until it comes to court and wait for the court decision, which is perfectly legal but it just postpones the resolution of the issue. so it creates uncertainty which is bad for the economy. is that a concern throughout the banking sector or do you have concerns in respect of particular institutions? it is a priority throughout the banking system