legislative reforms ; ( b ) the requirement that institutions have resolution plans in place ; ( c ) assessment of the effective resolution ability of the authorities of the respective crisis management groups ; and ( d ) the need for institutions to have the loss - absorbing capacity or funds to ensure that, in a situation of resolution, it can be carried out “ from within ”, i. e. without need for capital injections by the relevant authorities and without destabilising the financial system as a whole. allow me to take a moment to talk about loss - absorbing capacity in resolution, or total lossabsorbing capacity ( tlac ). on 10 november the fsb published a proposal on the tlac requirement to be met by systemically important banks, the final design of which is scheduled for the end of 2015. the consultative process of the tlac proposal will be conducted in parallel with an impact study which will include ( i ) an analysis of the tlac needs for each institution which may have to be resolved ; ( ii ) a survey to assess the depth of the market in each jurisdiction bis central bankers ’ speeches involved ; ( iii ) an analysis of the historical losses incurred by global systemic banks at the height of the crisis ; and ( iv ) an assessment of the economic impact of the proposal, both at institution level and as to how it will affect the supply of credit. the difference from the basel requirements lies in the instruments eligible for meeting the new requirement. thus, in addition to all the equity instruments envisaged under basel, the proposal permits, and in fact requires, the inclusion of debt instruments, generally subordinated debt instruments. experience shows that capital may disappear in a crisis, and quickly so. the authorities must, therefore, have debt and equity instruments which ( through debt reduction and / or conversion into equity instruments ) allow them to resolve and recapitalise institutions from within, without need for bail - out by the public authorities. will this be the end of the reforms? i think not, at least as far as other financial sectors are concerned. the considerably higher prudential requirements on banks naturally cause some credit intermediation to shift to other financial sectors, in a phenomenon commonly known as “ shadow banking ”. the fsb has set in train two courses of action to prevent an excessive concentration of banking risk off the balance sheets of banks : first, it monitors their size, activities and risk characteristics ; and second, it is working on the introduction

negative externalities on the financial system. this prospect creates an additional argument for capital by “ customer facing liabilities, ” i mean liabilities to households, retail investors, and businesses. in financial intermediaries, these liabilities are not only greater than in similarly sized balance sheets of non - financial firms. they also disproportionately arise from financial transactions – such as accepting deposits or investments – rather than for performance of services or delivery of goods. bis central bankers ’ speeches requirements – or, more precisely, an argument for progressively higher capital requirements that would reduce the probability of the failure of the systemically important intermediary. note that this last discussion has moved us toward consideration of macroprudential reasons for capital requirements – specifically, for higher requirements aimed at reducing the probability of insolvency below that which would be warranted if the sole regulatory aim were to protect customers, depositors, or even a government deposit insurance fund. as has been much discussed in recent years, pre - crisis financial regulatory regimes had substantially undervalued systemwide considerations. indeed, in the first instance the crisis spread not only because of the direct effects engendered by the insolvency of individual firms, but also because of the dramatic contraction of funding available throughout markets for widely held assets such as mortgage - backed securities. the pre - crisis explosion of short - term wholesale funding, both inside and outside traditional banks, left the entire financial system vulnerable to the disappearance of this market funding as real estate prices declined sharply and uncertainty spread about the value of the assets being funded. concerns about solvency accelerated the run of wholesale funding from bear stearns and lehman brothers, raising the prospect of classic fire sales of their assets, with consequent depressing effects on the balance sheets of all firms holding these assets. experience during the financial crisis vindicated the view of those who had argued that liquidity, as well as capital, in large intermediaries needed to be regulated. 2 it also buttressed the view that capital and liquidity regulation are closely related and need to be developed in tandem, if not as part of the same regulatory framework. much academic research prompted by the crisis has focused on the interrelationship between funding and solvency problems. 3 here, then, is another way in which the characteristics of the liability side of an intermediary ’ s balance sheet should determine the form and stringency of capital regulation. shorter duration and, if you will, increased