##interrupted service of critical functions and for insured depositors ; preservation of franchise value of the firm ; credibility of regime among financial institution counterparties, ex ante ; and, effective coordination and cooperation among jurisdictions in the event of a crossborder failure of an institution. one promising avenue is to embed contingent capital features into debt and preferred shares issued by financial institutions. contingent capital is a security that converts to capital when a financial institution is in serious trouble, thereby replenishing the capital of the institution without the use of taxpayer funds. contingent conversions could be embedded in all future new issues of senior unsecured debt and subordinated securities to create a broader bail - in approach. its presence would also serve as a useful disciplinary device on management since common shareholders would be incented to act prudently and avoid having their stake in the institution diluted away by the prospect of conversion. building resilient markets the third strategy to mitigate systemic risk is to enhance the resiliency of financial markets through initiatives to improve infrastructure and enhance transparency. continuously open financial markets are essential to a system that is robust to failure. keeping markets continuously open requires policies and infrastructure that reinforce the private generation of liquidity in normal times and allow for central bank support in times of crisis. the cornerstone is clearing and settlement processes with risk - reducing elements, particularly central clearing counterparties or “ ccps. ” properly risk - proofed ccps act as firewalls against the propagation of default shocks across major market participants. moreover, in the case of a single - participant default, a ccp ’ s standardized procedures can contribute to an orderly close out of that participant ’ s positions, eliminating the chance of a “ fire sale ” and reducing spillovers to other markets. for these reasons, the bank of canada has supported the development of a domestic ccp for canadian - dollar repos, which should be launched later this year. the bank is working with its domestic partners to develop similar infrastructure for over - the - counter ( otc ) derivatives markets. current g - 20 efforts to transfer trading of standardized otc derivatives to clearing houses have similar benefits. securities regulators and central banks have a shared interest in ensuring that the new infrastructure is properly risk - proofed. iosco recently provided helpful guidance for riskmanagement practices of central counterparties that clear otc derivatives products. 6 central banks look forward to the results of your consultations on this issue, which should serve to set robust standards to

capital requirements so that incentives are appropriately aligned. liquidity can be enhanced by a number of strategies. more effective resolution processes will help ensure that markets are robust to the failure of participants, thereby promoting liquidity in more states of the world. measures to develop continuously open funding markets, such as ccps, should expand liquidity options, as will more effective securitization. central bank liquidity facilities should reinforce continuously open markets and, potentially, securitization reforms. securitization will also enhance liquidity options. most fundamentally, the more successful the market infrastructure and resolution agendas are, the lower the overall capital requirements for banks, and the more efficient the overall system. conclusion g - 20 leaders have mandated a series of reforms to put the global financial system on a more solid footing. these changes are radical, not incremental. a focus on efficiently reducing systemic risk is essential. this means ensuring that individual financial institutions are both stronger and less systemically important, more options for liquidity are available in all states of the world, and the sum of the reforms is self - reinforcing and market - driven to reduce systemic risk. these solutions are being developed through closer collaboration between regulators and central banks. iosco ’ s efforts are central to this effort. i thank you for your focus on this critical agenda and for your attention today. http : / / www. iosco. org / library / pubdocs / pdf / ioscopd318. pdf.