models. the quest for innovations in financial intermediation joseph alois schumpeter, in his seminal the theory of economic development, stresses the important role played by the “ banker, ” as well as that of the “ entrepreneur ” 6 the banker profits from her ability to identify those entrepreneurs who develop truly innovative undertakings that are high - quality startups, and from generating information that leads to improved corporate performance. schumpeter expects that such profit motives of the banker backed up by her exceptional ability to pick winners would bring about a more efficient reallocation of risks in the macroeconomy and lead to an endogenous rise in the economic growth rate. 7 this role of the banker – promoting the creative destruction through financial intermediation – has not changed since the time of schumpeter. however, as economies mature, the nature of investment that supports innovations by entrepreneurs changes gradually from investments in tangible assets to those in intangible assets, such as research and development, information technology, and human and organizational capital. accordingly, investment in intangible assets is now identified as an important element of new sources of growth in the developed economies. 8 if i may point out the findings of one recent research study, investments in intangible assets are more sensitive to the availability of internal funds ( or cashflow ) compared with investments in tangible assets. 9 if financial markets were perfect markets, the sources of funds – that is, internal financing or external financing including bank financing – would be completely substitutable, and corporate investment would not be affected by the availability of internal funds. nevertheless, the fact that investments in intangibles are more sensitive to the availability of internal funds suggests that firms could be facing financial constraints due to information asymmetries. one could say that such asymmetries result from the difficulty of assessing the collateral value of intangible assets compared with tangible assets. consequently, there are opportunities for the banker to profit from overcoming information asymmetries. in japan, the ratio of investments in intangible assets to nominal gdp is lower than that in the united states and other major peers ( chart 8 ). if financial institutions are able to tease out the corporate demand for investments in intangible assets, that not only would enhance the productivity of the whole economy but also would contribute to solving the structural problem of low profitability of financial institutions. the future path of the japanese economy would be influenced by the behavior of financial institutions

a restructuring of the capital and liabilities of a bank that isn ’ t toxic all the way through ; as such it will be recognisable to specialists as broadly akin to the us chapter 11 system for business reconstructions, but speeded up for the exigencies of banking. bail - in is not unique in putting losses on bondholders. all resolution tools do that. the distinguishing characteristic of bail - in, as a resolution tool, is that it applies losses upfront based upon a valuation rather than at the end of a liquidation of assets. as such, it prospectively avoids an unnecessary destruction of value. for those groups that issue debt from the holding company and downstream the proceeds to operating subsidiaries, it should be possible to bail in debt at the holding company and recapitalise distressed parts of the group. where necessary, those distressed subsidiaries could be recapitalised by bailing - in – ie writing down and / or converting into equity – intergroup debt owed to the parent. the host authorities of those operating companies should in principle be prepared to go along with that kind of operation provided that the home country engenders the necessary trust and takes account of the need to maintain stability around the world not just in its immediate neighbourhood. deposit insurance schemes and bail - in : multiple point of entry resolution we should not, however, assume a monolithic approach to resolution. it is not a case of one size fits all. what i have described could work for banking groups that issue plenty of debt out of a top company. it would not work so easily for groups operating commercial banks around the world that are funded to a very large extent from insured deposits. in a hypothetical extreme case, if they haven ’ t issued bonds, then there would be no bond holders to bail in. it has become fairly common to say that such groups should be resolved on a regional basis, ie broken up. maybe. but even if that is correct, “ break it up ” hardly amounts to resolution plan. what happens to the broken - up parts? under a “ breakup ” strategy, a plan is needed for all of the parts, both distressed and undistressed. that can ’ t be a free for all. indeed, it is worth underlining that, under the fsb standard, 3 it is the responsibility of the home authorities of the group to ensure that a group - wide resolution plan exists. there is no ducking that. it removes an ambiguity that has quietly haunted