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Ladies and gentlemen, first, let me thank Fernando for this introduction and all the colleagues at the BIS, FSB, FSI and IADI for organising this event and inviting me to speak here today in front of such an esteemed audience.
Amelia Earhart, trailblazing aviator, first woman to fly solo across the Atlantic, has been quoted as saying:
“Preparation, I have often said, is rightly two-thirds of any venture.” But at some point, you have to take the leap and trust yourself to fly.
Today, as often, I would like to discuss the work we do to be prepared — Amelia’s 'two-thirds' — which, in our line of business, is clearly a much higher percentage. I'll also address how to eliminate the lingering doubts around our resolution framework and the need to tackle the inevitable unknowns that arise in a bank crisis.
1. Lingering doubts despite a strong framework and important progress
The 2023 turmoil has been both a demonstration that the resolution framework works – as the FSB concluded in its lessons learned report – and an important wake-up call to close its remaining gaps both at global and national level.
Back then, even if financial stability was quickly restored, some actions and some public statements, cast a shadow of doubt over the resolution framework.
In Europe, we were largely spared by the recent turmoil – a bit of good preparation but certainly also a little bit of luck. However, we were not spared by the doubts over the resolution framework. Recently, concerns have been raised in the press about bank mergers and acquisitions within the Banking Union, arguing that in a crisis, taxpayers from one Member State could end up bailing out depositors from another.
I am perhaps not the best placed to determine whether a merger or an acquisition makes sense or not from a going concern perspective. But, as a resolution practitioner, I am very well placed to say that this debate on who bails out whom is from a different era. It may have made sense in 2008 but it is very surprising in 2024.
Since 2008, tremendous progress has been achieved: from the establishment of the FSB, to the agreement on the key attributes to their implementation in many of our jurisdictions.
Whole departments and agencies – like the SRB – have been established. Thousands of people around the world – in both the authorities and the banks – have been dedicating years of their careers to ensure that banks become more resolvable to avoid bailouts.
Banks themselves have been accumulating loss-absorption capacity, established well-staffed resolution planning units, developed capabilities and know-how that will be critical in case we need to resolve them.
Finally, for over a decade, at global level, agencies have been talking to each other, carrying out simulations together, and, thus, creating trust and, in a virtuous circle, improving each other.
At this point, thanks to the efforts I just described, mergers (cross-border or not) have only an impact for us in terms of insuring that the new group is as resolvable as the previous entities were, or even more..
Sometimes it appears that the resolution framework, and our everyday work, is not fully understood. In times of tightening budgets, it is all the more important to remind everyone that there is an alternative to bailouts. We need to keep all stakeholders engaged. They should not forget the past and the progress made since!
We – the people in this room and the many more back home – are here to ensure that bank failures have minimum impact on financial stability, the real economy and the taxpayers. This means that we are here exactly to ensure that there no more banks that are “too big to fail”. Briefly, we are here to avoid bailouts.
I think that we need to work, at all levels, to remind all stakeholders, including the public at large, of the strength of our framework and also inform them of the work carried out so far.
Don’t get me wrong, I am not arguing that our work is done or that the framework is perfect. In fact, resolvability is neither a static condition nor a binary question. Like business models and markets themselves, risks evolve over time. Becoming and remaining resolvable is an iterative process requiring continuous adaptation to rapidly changing market conditions and emerging risks.
2. What should we do to ensure that resolution is no more in doubt?
Clearly, the more complete and up-to-date is the framework, the more credibility it will have in the moment of need. In practice, this means that we should double down on our efforts initiated with the FSB’s lessons learned exercise both individually and all together.
Of course, every jurisdiction has different needs. Even more so, the work that we carry out altogether here at “Basel level” is critical to ensure that our frameworks develop harmoniously.
I would like to mention a few lessons learned that we consider a priority, in particular in the context of the FSB/Resolution Steering group:
Bail-in and securities law. The workshop, the report and the steps plan prepared on this topic were extremely useful and, once more, they gave us the opportunity to better understand each other. Now, the work will go to the CMGs, while keeping a high level horizontal approach in parallel. At the SRB we are organising in coordination with US authorities a dry-run and a deep-dive for a relevant bank. The idea is to test how to deal with the securities laws in practice during a crisis situation.
Cooperation and communication outside the CMG. This is certainly a non-contentious item, even not so easy to tackle, for which a lot progress can be achieved. We really hope that the FSB work can be launched as soon as possible.
Optionality for resolution strategies. The work here has already started at FSB level with the establishment of a working group and the preparation of a survey. At the SRB, we are also working on this item. Establishing or further developing variant strategies will be a “common priority” for the 2025 resolution planning cycle so for all banks under our remit. In addition, as you perhaps know, negotiations are ongoing for a reform of the European crisis management framework – the so called CMDI – that should, at least in part, help us in executing transfer strategies.
Liquidity in resolution. The FSB survey comparing backstops mechanisms across jurisdictions is very useful. Let’s be clear, this is an area where the European framework could fall short in addressing the tail risks that the biggest player represent. While the Single Resolution Fund is a powerful tool, it still lacks the necessary liquidity provisions to handle very large crises.
I am sure that we will hear a lot more in detail about these two last topics in the two very interesting upcoming panels.
Making progresses to close these gaps, and possibly looking more in-depth into risks coming from outside the banking sector, will increase trust in the system, thus limiting the risk of the past: seeing ailing banks being dealt with outside of the resolution framework.
3. Trust in each other and common efforts are key to complete the framework
Unfortunately – we have to be honest – some of these issues that I just mentioned do not have a quick and obvious solution and not for lack of trying.
Perhaps it is strange of me to say but planning has its limits. A large bank failure is too complex to plan for every scenario. The “risk free solution” is an objective, but the reality is that there will always be a 'grey zone' where we can't guarantee 100% success.
By planning and ensuring that our toolkit is as flexible and complete, by implementing the FSB key attributes thoroughly, by testing our preparation and processes, as well as by clearly communicating it to our stakeholders and the public, we minimise this “area of uncertainty”. But, let’s be clear it will not go away entirely in our fast -evolving world.
This does not mean that we should be fatalistic and come to terms with the possibility of failing. “Au contraire”. We must ensure that, when the time comes, all parties are ready to go above and beyond— trying to find solutions, all with the goal of preserving financial stability.
The time we invest in dialogue at all levels, in forums like the FSB, its substructures, or the CMGs on a bank-by-bank basis, is crucial to ensure that we're fully prepared to do the right thing at the right moment to safeguard financial stability. We need to know each other and trust each other. Only like this we can be sure that we will be ready to find the right solutions, potentially making the right compromises for dealing with the unknowns of the “grey area” that I mentioned before.
4. Conclusions
Let me conclude by stating the obvious once again:
Financial stability is the bedrock of a healthy, dynamic and competitive economy.
Let’s keep working steadily, building on the strong foundation of the FSB key attributes and of our respective mandates, to ensure more resolvable banks and a more stable banking system. By doing so, we will able to reduce to “area of uncertainty” in a crisis.
At the same time, let’s not forget to keep talking to each other and exchanging so that, when facing the inevitable unknowns, we will be ready to swiftly take the necessary steps for the sake of financial stability. This is why, after all, being here today discussing with deposit insurers and, more generally, being active members of the FSB is such a critical part of our jobs.
Thank you very much.
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