of course, it is in operating companies – banks and dealers – that life - threatening losses are generated. where those losses exceed the equity base of an operating subsidiary, they need either to be absorbed by debt issued into the external market or to be passed up the group structure via intra - group debt or guarantees. the first – gclac, ie term debt, issued to the market – is associated with multiple - point - of - entry resolutions. the latter, where losses flow to the top of a financial group, are associated with single - point - of - entry resolutions. 3 the choice of how equity and gone - concern loss - absorbing capacity should be distributed across a group is, therefore, part and parcel of deciding its preferred resolution strategy. that was not understood as international banking policy was developed over recent decades, and sets up my next issue. reconciling the basel concordat, the core principles of banking supervision, the capital accord, and resolution policy the development of international policy on resolution is, arguably, exposing an underlying need to reconcile the provisions of various international agreements in banking regulation and supervision. there are three that are relevant : the concordat, the core principles and the capital accord. bear with me for a moment while i set up the point i want to make. the concordat4 establishes the division of labour amongst home and host authorities – the foundation stone of international co - operation amongst bank supervisors. first agreed in 1975 in the wake of the failure herstatt, updated after banco ambrosiano in 1983 and again in 1992 following the closure of bcci, the concordat was most recently spring cleaned in 1996. it is premised upon “ consolidated supervision ” of a banking group as a whole. what that means is that so long as the host supervisors of local outlets of an international banking group are satisfied that the home supervisor is capable of supervising the consolidated group as a whole, the distribution of capital resources across the group, both within and across jurisdictions, can be unfettered. in principle, legal entities within the group can be lightly capitalised so long there is adequate capital in the group as a whole. see tucker ( 2013 ), ‘ banking reform and macroprudential regulation : implications for banks ’ capital structure and credit conditions. ’ see financial stability board ( 2013 ), ‘ recovery and resolution planning for systemically important financial institutions : guidance on developing effective resolution strategies ’ ; and tucker ( 2013 ), ‘ resolution and the future of finance ’

answer. following a recommendation from the fpc earlier in the year, the bank has today published a discussion paper setting out plans, to be implemented progressively over a number of years, for just such a stress - testing regime for the united kingdom. in broad terms, each year the fpc would design a ( set of ) common scenario ( s ) that it judges the banking system needs to be able to survive ; the pra would apply those scenarios to the major banks, dealers and building societies, alongside more firm - specific scenarios ; drawing on analysis from across the whole institution, bank staff would analyse capital adequacy under stress drawing on a range of models, including firms ’ own models. the results would inform judgments by the fpc and the pra board on whether remedial measures were needed. in some degree, both the stress scenarios and the results would be published. that very brief summary leaves a lot of questions unanswered, but suffice to say that we believe that a stress - testing regime can enhance the quality of the bank ’ s macro and micro prudential supervision and, over time, underpin confidence in the banking system. in addition, i believe that a stress - testing regime will be very important for another reason : accountability to the public via parliament. the bank of england now has extensive powers as a micro supervisor of individual firms and a macro supervisor of the financial system as a whole. parliament has set objectives for both – primarily, safety and soundness for the pra, bis central bankers ’ speeches and the resilience of the system for the fpc. but unlike in monetary policy, we do not have a quantified target – and, to be clear, we do not think that that would be possible. to have such power with limited transparency would be uncomfortable. if nothing else, it would leave the bank in a position where supervision was of interest only when it obviously goes wrong. we need to engage society – public, parliament – in debates about the resilience of the financial system and how we are supervising it in the good times as well as in bad times. the fpc and pra have already taken various steps to help with this – the six - monthly financial stability review, the published record of fpc policy meetings, the committee ’ s statement on the use of its directive powers, the pra ’ s approach document and annual report, and so on. but stress testing can provide a quantum leap