globalization, and deregulation have inexorably eroded the traditional institutional differences among financial firms. examples abound. securities firms have for some time offered checking - like accounts linked to mutual funds, and their affiliates routinely extend significant credit directly to business. on the bank side, the economics of a typical bank loan syndication do not differ essentially from the economics of a best - efforts securities underwriting. indeed, investment banks are themselves becoming increasingly important in the syndicated loan market. with regard to derivatives instruments, the expertise required to manage prudently the writing of over - the - counter derivatives, a business dominated by banks, is similar to that required for using exchange - traded futures and options, instruments used extensively by both commercial and investment banks. the writing of a put option by a bank is economically indistinguishable from the issuance of an insurance policy. the list could go on. it is sufficient to say that a strong case can be made that the evolution of financial technology alone has changed forever our ability to place commercial banking, investment banking, insurance underwriting, and insurance sales into neat separate boxes. nonetheless, not all financial institutions would prosper as, nor desire to be, financial supermarkets. many specialized providers of financial services are successful today and will be so in the future because of their advantages in specific areas. moreover, especially at commercial banks, the demand for traditional services by smaller businesses and by households is likely to continue for some time. and the information revolution, while it has deprived banks of some of the traditional lending business with their best customers, has also benefitted banks by making it less costly for them to assess the credit and other risks of customers they previously would have shunned. thus, it seems most likely that banks of all types will continue to engage in a substantial amount of traditional banking, delivered, of course, by ever improving technology. community banks, in particular, are likely to provide loans and payments services via traditional on - balance sheet banking. indeed, smaller banks have repeatedly demonstrated their ability to survive and prosper in the face of major technological and structural change by providing traditional banking services to their customers. the evidence is clear that well - managed smaller banks can and will exist side by side with larger banks, often maintaining or increasing local market share. technological change has facilitated this process by providing smaller banks with low - cost access to new products and services. in short, the record shows that well - managed smaller banks have nothing to fear from technology

tools that will substantially reduce the costs of a crisis. the legacy of the current crisis is a banking system with large international institutions that now enjoy a virtual state guarantee. the fact that systemically important banks enjoy such a guarantee is now openly recognised to be a problem by the banking sector, too. a guarantee of this kind contradicts the basic principle of the market economy and presents us with a situation that cannot be tolerated. it must be possible for any financial institution, even a large one, to fail, without threatening the future of either the financial system or the real economy. in the last two years, the risks presented by systemically important banks to the stability of the financial system and the economy in general have become only too evident. first, in principle, systemically important institutions have an incentive to enter into excessive risks ( moral hazard ). should these risks materialise, this can lead to losses of unimaginable dimensions, as has indeed occurred. second, the potential costs of supporting systemically important banks are enormous. third, the larger the systemically important institutions compared to the size of a country ’ s economy, the greater the likelihood that the costs in question will exceed the capacity of that individual country to bear them ( the “ too big to rescue ” issue ). the leaders of the g20 countries were quick to recognise the significance of these risks and they asked the financial stability board to elaborate proposals before the end of october 2010 on how the “ too big to fail ” and “ too big to rescue ” issues could be addressed. in its interim report on this matter published at the beginning of november 2009, the fsb focuses on three elements. at the same time, it is closely monitoring the development of additional proposals at national and international level. from the point of view of the fsb, the possibility of conducting an orderly resolution of a failing cross - border financial institution is an important element in finding a solution to the “ too big to fail ” and “ too big to rescue ” issues. effective communication between the relevant supervisory authorities as well as forward - looking elaboration of emergency procedures are indispensible in this process. internationally recognised regulations for the dissolution of systemically important institutions that can be enforced under any jurisdiction are no doubt a splendid objective. in the real world, however, different national regulations will continue to exist in this field. from our point of view, reciprocal recognition of national regulations that are mutually compatible, and the associated adjustment of structures and processes,