be the principal creditors in an insolvent liquidation. the technical issue is how to achieve that in a way that minimises disruption and value destruction and enables essential ccp services to be maintained. this is a key agenda item going forward. it will involve achieving greater clarity in the related area of the optimal “ waterfall ” of margin, default fund and ccp owncapital resources in absorbing losses. 4. margin requirements and macroprudential policy earlier this year, us treasury secretary geithner called for the world ’ s major financial authorities to agree minimum initial margin requirements for uncleared otc derivative contracts, on the grounds that we must avoid a race to the bottom and incentives that make it attractive to clear bilaterally rather than via a ccp. i agree. but, looking ahead, we must surely establish a system that can extend beyond that “ first base ”. first, we need policies that extend across markets. if we apply them only to otc contracts, exchange - traded contracts might be subject to different requirements. and if we applied such minima only to, say, futures, we could see the economic substance of futures synthesized via cash repo markets on looser terms. the same applies to other products and markets. generally, we should take care to avoid regimes that give market participants incentives to chose between economically equivalent transactions and post - trade processing on the basis of different margin or haircut requirements. secondly, we have to recognise that economic and financial conditions change – sometimes beyond our wildest dreams – so any minima set for one period may not be at all suitable for see tucker, p m w, “ clearing houses as system risk managers ”, june 2011. bis central bankers ’ speeches another. we need, therefore, to be able to vary any such minima as threats to stability evolve ( crudely, cyclically ). you will recognise in this an echo of the plans for varying bank capital requirements. this is all part of an evolving macroprudential toolkit. as a contribution to that, emir should make explicit provision for macroprudential tools. the initial text did not do so, i think mainly because macroprudential thinking has been advancing as the crisis has evolved, but i understand that the parliament ’ s text does take a step in this direction. it is not too late for europe to lead the world in this area on macroprudential policy generally, by providing a framework for national regimes co - operating with esrb

##20 mandated ; and, in any case, it would not be in the interests of global stability. related to all this, the eu must ensure that requirements to clear through ccps apply also to exchange - traded derivatives and to vital cash markets, not just to “ standardized ” otc derivatives. whatever anyone says, there is really no excuse for where things currently stand on this in europe. the mifid ii package provides an opportunity to correct it next year. thanks for comments to andy haldane, edwin schooling - latter, anne wetherilt, graham young and david lawton ( fsa ). bis central bankers ’ speeches those who argue that the gap in the eu ’ s framework should persist are serious about private gain but, sadly, not about stability. the crisis that threatens to engulf us all illustrates why we should give no room to such sentiments. 3. ccp default and resolution there is a big gap in the regimes for ccps – what happens if they go bust? i can tell you the simple answer : mayhem. as bad as, conceivably worse than, the failure of large and complex banks2. we therefore need effective resolution regimes for ccps ( and other financial market infrastructure ). the financial stability board will drive this forward as part of our work on the resolution of sifis. ( a comprehensive package on the resolution of banks and dealers will go to the g20 leaders summit shortly. if endorsed, and finance ministers have already given their endorsement, it will become a standard to which countries / jurisdictions pledge to abide. ) the eu ’ s own work on resolution regimes has been a hugely positive input to this global process. as part of the fsb - led and co - ordinated effort, the central bank committee on payment and settlement systems and iosco are beginning to work on this area of resolution. they must make a clear distinction between measures to procure, on the one hand, recovery from distress and, on the other hand, resolution. orderly resolution is what is needed when a ccp is bankrupt, when we all need somehow to avoid the chaos that follows a standard liquidation of assets and closing out of positions. the issue, always, is where do the losses go? the answer cannot be the taxpayer. in the banking sphere, the answer, broadly, is bond holders and other unsecured, uninsured creditors. in the ccp sphere, it is probably the clearing members, as they would