spe resolution works downwards from the group ’ s top company – most simply, a pure holding company ( holdco ). losses in subsidiaries are first transferred up to holdco. if holdco is bankrupt as a result, the group needs resolving. the “ bailin ” tool is applied to holdco, with the equity being written off and bonds converted as necessary into equity to recapitalise the group. those bondholders become the new owners. the group stays together. under multiple - point - of - entry or mpe resolutions, by contrast, a group would be split up into some of its parts. healthy parts might be sold or be maintained as a residual group shorn of the accident of history arose from the mcfadden act ban on interstate banking. banks set up holding companies so that they could own banks in different states. a variant of that story applies to broker dealer groups. bis central bankers ’ speeches their distressed sister companies. the resolution of the distressed parts might be effected via bailin of bonds that had been issued to the market by a regional intermediate holding company. this is, of course, no more than a brief sketch, but i hope it will suffice for me to draw out some of the implications for the industry and regulators. 2 for many financial groups, it is fairly obvious which broad resolution strategy ( spe or mpe ) they are currently most suited to. but few major groups will escape having to make significant changes to their legal, organisational and financial structure to remove obstacles to effective resolution under that preferred strategy. for example, outside of the us, many “ spe groups ” will need to establish holding companies from which to issue bonds that can absorb losses and be converted into equity through a resolution. and even in the us, nearly all “ spe groups ” will need to ensure that there exists intra - group debt, issued by key subsidiaries around the world to the holding company, that can be written down when a distressed subsidiary would otherwise need to be resolved. for “ mpe groups ”, many will need to do more to organise themselves into well - defined regional and functional subgroups, perhaps with regional or functional intermediate holding companies, which could be subjected to spe resolutions. and these groups will need to ensure that common services, such as it, are provided by stand - alone entities under contracts that are robust enough to survive the break up of the group. there will be implications for the regulatory regime too. as i see

not limited to the us and uk. separately, some technical impediments need to be removed. perhaps most obviously for this audience, the standard market agreements for derivatives and repos need to be amended so that putting a firm into resolution or the exercise of a resolution power is not an event of default. if necessary, there will have to be regulatory changes to induce or require this. that too is on the fsb ’ s agenda for the next year. see financial stability board ( 2013 ), “ progress and next steps towards ending “ too - big - to - fail ” ”. for example, at the fdic systemic resolution advisory committee meeting on 10th december 2012. the webcast for the meeting is available online at : http : / / www. fdic. gov / about / srac / 2012 / 2012 _ 12 _ 10 _ agenda. html bis central bankers ’ speeches the resolution agenda is not just about banks and dealers. it is about central counterparties too, for example banks became tbtf by accident. the g20 leaders having mandated that standardised otc derivatives must be centrally cleared, there is a risk that central counterparties ( ccps ) will come to be seen as too important to fail as a matter of policy. that makes it incredibly important that ccps are robust, effectively managed, effectively supervised, and have first rate recovery plans. and, beyond that, they absolutely must be subject to a credible resolution regime. i worry that ccps are “ for profit ”, or are typically part of “ for profit ” groups. if a ccp fails and it turns out that its risk management was slack, this point is bound to come up in the public response. policymakers should think about that now in the context of the governance structure they want for ccps embedded in vertically integrated groups. meanwhile, work is underway in cpss / iosco8 on loss - allocation rules. unlike banks, ccps are essentially rule - based machines for netting and allocating risks. those rules need to be enriched so that it is clear what happens when, due to a member ’ s default, both the initial margin and default fund are exhausted. the guidance which cpss / iosco produce following the current consultation will need to be unambiguous. that work can build a solid defence against failure. but one of the central lessons of the crisis is that we must be able to cater for the worst, when all defences are breached. the fsb has therefore