on conservative modelling assumptions. but there is a remaining task : a case - by - case re - underwriting, involving where possible recovery and where necessary restructuring, of troubled loans. this is crucially important for a number of reasons. while the banks still have uncertainty about the granular performance of their loan portfolios, they will be unsure of the exact capital buffer that is in place and the extent to which they have adequate capital for extreme loss developments. to my mind, this encourages an attitude of hoarding capital and provides disincentives to lending. at the end of the summer, there was much debate around a widely reported central bank analysis of lending to the small business sector, where we found that loan rejection rates were significantly higher than other eu jurisdictions, excepting greece, and which to our mind pointed to supply constraints in the banking sector ( in addition to problems over credit quality ). uncertainty about the current loan book and the exact losses that will crystallise ( and therefore consume capital ) are likely a factor in constraining lending. absent an exercise of even further recapitalisation, the best option is more specificity and understanding of the performance of the legacy loan portfolios – and an exercise in facing up to losses and modifying loans as necessary. bis central bankers ’ speeches the banks ’ mortgage portfolios are a case in point and have involved close attention by the central bank. at this event last year, i explained how we were initiating a project to require mortgage arrears resolution strategies from all lenders in ireland. we received these in november of last year and provided feedback to the banks, highlighting the need for more effort on a number of fronts. one major area of concern was the lack of operational capacity in the banks to deal with customers in arrears so we required senior management to commit to a step change improvement in that capacity. the plans we received showed significant improvement and we are continuing to monitor progress closely. we also pressed the banks to work harder to develop specialist strategies for their buy to let portfolios. and, crucially, we insisted that the banks develop a broader range of techniques to deal with loans in arrears, drawing on the ideas of the so - called keane group. in a slight simplification of the position, the banks were relying heavily on the provision of interest only arrangements or the capitalisation of interest arrears, even though these techniques were clearly unsuitable for a sizeable group of customers with unsustainable mortgage

in methods to lay off risk when a problem occurs – through, for example, credit derivatives and collateralisation – be as ready to contribute to solutions predicated on the give and take of long - term relationships? and will the increasing complexity and size of large complex financial institutions deter previously willing possible participants? since the fsf ’ s creation, there has been further consolidation of international banking groups and globalisation of markets. our vulnerabilities are more concentrated : although the firms and capital markets in which they are concentrated are probably more resilient, we have bigger and potentially more complex points of failure. this concentration has brought efficiencies, and has been supported george, e ( 1994 ) “ the pursuit of financial stability ”, bank of england quarterly bulletin, february. by enhanced oversight of global firms and the capital markets they operate in. but the price we pay is more complicated ( and therefore potentially more costly ) crisis resolution. a practical way forward so how can we make more progress? i have spoken about drawing up a shared framework or set of principles but i am only too aware how easily that could become a drafting exercise in which difficult issues are evaded rather than dealt with. clearly initiatives such as this workshop are a useful way to bring relevant policymakers together – and i am encouraged by the shared commitment to make progress that you have shown by being here today. my suggestion is that probably the best way of making further progress on a genuine and useful common approach is to work together on practical examples ; to consider some of the operational problems that we would face if particular sorts of crises arose. and thus establish a shared fact base and understanding of what we might expect from each other in a crisis, and how we should go about handling it. this idea of informal groups of relevant authorities is not new. in a sense, it is borrowed from the supervisory world, where colleges of regulators have existed for some time, with the aim of devising ways of pooling knowledge and developing common approaches – to supervise firms efficiently and to reduce the supervisory burden for them. the groups to discuss crisis management issues would need to bring together supervisors and central banks. both are likely to have day to day information which is relevant in a crisis, and both will also have control of tools which can be used to handle the problem. at the same time, the number of participants would probably need to be smaller than in a regulatory college if these group are to be effective. to remain focused, the core group might