irish bank ). the national authorities also felt that it would not be necessary to use all of the €35 billion pencilled - in to the loan agreement for bank recapitalisation. the capital required as a result of the aggressive pcar 2011 stress test of march 2011 was met with about a half of that, thanks in part to the bail - in of subordinated debt holders. without access to the private financial markets, the irish government would have had to constrain spending suddenly and drastically. in addition, without support from the ecb it would not have been able to continue in the euro. bis central bankers ’ speeches fact 3 : “ the eu and imf insisted that the programme would not contain a bail - in of senior bank creditors. ” many involved imf staff had envisaged a partial haircut on senior debt, but they were not supported when a majority of finance ministers of the g7 decided that bail - ins of senior bank bonds was a bad idea. ( attitudes subsequently changed : bail - in later became an emphasis of eu resolution policy ). irish officials had already been exploring whether and how it might be possible, post - guarantee, to bail - in remaining unguaranteed senior bondholders of anglo and inbs. they could have continued to plan for this and – who knows – might possibly have been able to do so during 2011 had the matter not already been raised abortively at the time of the bailout negotiations in november 2010, thereby pre - emptively sensitising some of the lenders to the issue. ( admittedly, though, “ fact 4 below suggests that this notion may be somewhat fanciful. ) fact 4 : “ the lenders again refused in march 2011 to countenance bail - in of senior bondholders of the failed banks anglo and inbs. ” while bail - in was not part of the programme, the irish authorities had not undertaken that the old unguaranteed debt of the failed banks would be repaid, but was strongly discouraged from keeping the bail - in option publicly on the table at the time of the announcement of the stress test results of march 2011. although the amounts involved here at that stage were less than €5 billion ( or about 3 % of gdp ), this widely known episode is the one hardest to rationalise, even taking account of the persistent stress in european banking market conditions at the time. myth 4 : “ the eu partner countries used the crisis to leverage irish policy

international initiatives about to be finalized will strengthen prudential frameworks and make financial systems less prone to systemic shocks. 24. one such initiative is the commitment by all g20 jurisdictions to implement basel ii by 2011 and to finalize this year a new package aimed at strengthening bank capital and liquidity standards. this is a great achievement. the challenge, now, is to calibrate and phase in the new framework in a way that does not impede the recovery. the macroeconomic assessment of the reforms underway will help us strike the optimal balance. 25. beyond capital and liquidity, other important initiatives are aiming at addressing systemically important financial institutions and cross - border resolutions. to better deal with the problem associated with systemic firms, progress is being made to improve the capacity to resolve them orderly, and to strengthen ex ante preparedness, contingency planning, cooperation and information exchange among the relevant authorities. 26. there is a broad agreement for an approach that may have two pillars. one is about tools and measures to limit the risk of their failure ; the other is about tools and measures to limit the consequences of their failures. discretion is required to allow national authorities to strike the balance between the two pillars and tailor regulatory and supervisory actions to domestic conditions. the challenge is to ensure that national policies to address the risks associated with these firms are consistent, mutually supportive and thus avoiding regulatory arbitrage. but beyond international initiatives, enhancing supervision at the domestic level remains very critical. 27. higher and better capital and liquidity standards are not sufficient conditions to secure the stability of the financial sector. changes in the practice of micro - prudential oversight are also needed. indeed, a lesson from the crisis is that the way supervision was performed prior to the crisis has likely contributed to it. this is recognized by the g20 leaders, at their recent summit in toronto, which make more effective supervision the second of the four pillars of its strategy towards more resilient financial systems. the fsb is engaged in a thorough review of supervisory practices. 28. with hindsight, the way supervision is conducted should be enhanced in two directions : 29. – first, supervision should be intrusive into the affairs of regulated firms. weak intrusiveness was a problem because supervisory rules such as basel 2 rely extensively on banks ’ own risk valuation, management and governance. it was also a problem because discipline imposed on banks by investors did not always work : due diligence was weak and rating agencies