- specific cross - border cooperation agreements ( or coags ) are also bis central bankers ’ speeches being developed, setting out roles and responsibilities of the home and host authorities, clarifying how they will share information, and how they will cooperate to implement their preferred resolution strategy. if home and host authorities are not going to cooperate, we need to flush that out ahead of time, rather than stumble into it in the moment of desperation. there ’ s a good deal of cultural change entailed here. in the past, supervisors have sometimes seemed during peacetime to be more committed to cooperating than they have been prepared to live up to when it most mattered. a forthcoming fsb consultation paper on developing resolution strategies but we – the fsb – realise that more guidance is needed. although not of central interest to this audience, resolution isn ’ t just about banks, and so we are planning to elaborate on how the key attributes should be applied to, for example, central counterparties, insurers, and the client assets held by prime brokers, custodians and others. more relevant to today ’ s conference, following the fsb ’ s recent plenary meeting in tokyo we announced that in the next few weeks we will issue a consultative paper on resolution planning and, in particular, on resolution strategies. the paper, drawn up by a subcommittee led by christine cumming of the new york federal reserve bank, will cover three areas. the first is recovery triggers and stress scenarios used in recovery planning. firms need to ensure that triggers are not linked mechanically to metrics that lag behind their true financial condition – a problem with some previous earlyintervention frameworks. recovery actions must start sufficiently early. but care must be taken to avoid markets overacting to the fact of such actions being taken. that is not easy. second, the consultative paper will outline a possible framework for national authorities to use when identifying the critical functions and support services of firms that need to be sustained in distressed conditions. what matters here is focusing on those services that are vital to the economy. the third, and most important, area of consultation is about the development of resolution strategies and operational resolution plans. this guidance aims to capture the main issues that authorities should address. it draws on two stylised approaches to resolution : a so - called “ single point of entry ” approach, under which resolution of a whole group is executed, primarily by the home authority and mainly at the level of the parent

behaviour fuelled the credit binge that ultimately led to the global crisis. second, if markets always clear, they should possess a natural stability. evidence to the contrary must be the product of market distortions or a result of incomplete markets. much of financial innovation springs from the logic that the solution to market failures is to build new markets on old markets. 7 progress through infinite regress. during the great moderation, such thinking became an organising principle for financiers and policymakers. the latter pursued a light touch regulatory agenda in quest for the perfect world of complete markets first described by the economists arrow and debreu. 8 their world imagines self - interested, atomistic agents, coolly calculating odds over all future possible states of the world, writing and trading contracts with each other, all frictionlessly enforced, all achieving mutually beneficial – indeed socially optimal – outcomes. of course, markets only clear in textbooks. in fact people are irrational, economies are imperfect, and nature itself is unknowable. when imperfections exist ( which is always ), adding markets can sometimes make things worse. take credit derivatives, which were supposed to complete a market in default risk and thereby improve the pricing and allocation of capital. financial alchemy seemed to have distributed risk, parcelling it up and allocating it to those who wanted most to bear it. however, the system had only spread risk, contingently and opaquely, in a way that actually ended up increasing it. risk ended up concentrated on the balance sheets of intermediaries that were themselves capital constrained. with the fates of borrowers and lenders tied together via hyper - globalised banks and markets, problems at the core spread violently to the periphery. a truth of finance is that the riskiness of an asset depends on who owns it. when markets don ’ t always clear, the ultimate owner may be surprised to find what they do own. when that surprise is – or is thought to be – widespread, panic ensues. the impossibility of completing markets was not the only practical problem with the pre - crisis approach. even if markets were perfect, nature itself is unknowable. recall that the arrow - debreu world relies on people being able to calculate the odds of each and every possible scenario. keynes, j m ( 1936 ), chapter 12. but economists of a more nuanced persuasion pointed out as far back as the 1950s that this logic is flawed. see lipsey