various options for intervention. 3 he argued that, in deciding whether to provide support, the authorities should : explore every option for a commercial solution before committing public funds ; structure any support such that losses would fall first to shareholders and any benefits fall first to the authorities ; not, in normal circumstances, lend to a firm known at the time to be insolvent ; and, look for a clear exit from provision of the lending. these guidelines go more to the question ‘ how ’ rather than the question ‘ when ’ the authorities should intervene, and they were drawn up before the globalisation of banking and capital markets had got fully underway. so i do not put them forward as the complete answer ; rather i think we should be discussing whether there are some common understandings which could inform and shape crossborder cooperation. international complexity of course reaching a common view will be difficult. but it seems to me a necessary step towards meeting the challenges of handling financial instability in the new world of open international capital markets and giant complex financial institutions. many of the challenges have been discussed in the international community. in particular : the potential difficulty in amassing a complete picture of the health of firms and capital markets in crisis from different authorities ; the potential complexity of large firm structures, where entities within a firm may be subject to different legal arrangements, preference rules and rules concerning ownership interests and creditor arrangements ; and the possible technical difficulties in winding down an entity that is engaged in complex trading strategies. there are also of course issues around how liquidity and capital can be moved around a group : whether collateral, funding or capital can be moved quickly across borders to where it needs to be. further, some of the commonly preferred methods for resolving a financial crisis, before moving to winding down methods, may be less easy to deploy than they were even a few years ago. i think many of us would share eddie george ’ s view that we should look first for a private sector solution before committing public money to a rescue operation. when ltcm got into serious difficulties in 1998, and there was a risk that its liquidation could further destabilise markets, the new york federal reserve was able to facilitate discussions that resulted in a cooperative market solution. but would this kind of approach still be possible today? certainly private sector solutions looked easier when lending was the predominant source of funds, banking systems were arranged predominantly along national lines, and it was possible to get the key counterparties round a single table. will firms that have actively engaged

provide a framework for deciding whether to intervene in a crisis, as well as helping to understand who may be interested in intervening. and fourth : the types of measures we have available in a crisis. i outlined earlier a number of challenges in resolving a crisis involving a large complex financial institution, and the obstacles we may face in addressing them. the contact group 2002 report on legal underpinnings 4 provided more detail on the extent to which different legal regimes created vulnerabilities in managing crises. through discussion of hypothetical problems for real firms we may get closer to understanding more concretely what these obstacles will look like in practice and therefore what we might want to put in place to mitigate them. put another way, it is potentially a way to develop practical solutions, or at least a practical understanding of the specific issues we might face, within the parameters of our current legal and fiscal set up. what we learn from firm - focussed interest groups should also put us in a better position to tackle some of the thorny issues we face. one which particularly exercises me is ensuring that we should always have the option of closing down a large firm in an orderly way, even if we need to use emergency liquidity assistance as a bridging loan to do so ( rather than as a step towards keeping the firm open ). looking further ahead, it is clear that these interest groups should not remain inward - looking. in order for any preparations for crisis to be relevant, authorities will need to ensure that they are informed by firms ’ plans and views – for example on their likely own actions in crisis, where they see their vulnerabilities in managing a problem, what they expect the authorities to do, and where arrangements could be improved. so the ongoing dialogue that the relevant authorities have with firms may well inform, and be informed by, the work of interest groups. what role could the fsf play in promoting these kinds of bilateral or small multilateral discussions and exercises on practical topics regarding specific firms and markets? as we all know, it is not the role of the fsf to manage cross - border crises. but my view is that the fsf does have a role in this area. to me it seems the ideal group to draw out the common messages and lessons that may emerge from these interest group discussions, and to establish a common framework for handling crises which will be of use both to its members and more widely. http : / / www. bis. org / press / p0