Former central banker Paul Tucker is the chair of the Systemic Risk Council, a Fellow at the Harvard Kennedy School, and author of Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State. 

LONG BIO

The resolution of financial institutions without taxpayer solvency support

Policymakers have committed to complete the steps necessary to cure the world economy of the Too Big To Fail (TBTF) problem by the time of the G20 Summit in Brisbane this autumn. This is, of course, the biggest component of the programme for reforming the international financial system. From 2009 I led that work for the Financial Stability Board, but I must stress that I have not been party to it since I retired from office last October. I shall accordingly endeavor to make clear when I am recalling thinking while in office and when I’m offering a view on questions, and a few confusions, I’ve encountered since then.

Seven Retrospective Clarifications and Elaborations

European Summer Symposium in Economic Theory, Gerzensee, Switzerland

Paul Tucker, Harvard Kennedy School and Harvard Business School

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Policymakers have committed to complete the steps necessary to cure the world economy of the Too Big To Fail (TBTF) problem by the time of the G20 Summit in Brisbane this autumn. This is, of course, the biggest component of the programme for reforming the international financial system. From 2009 I led that work for the Financial Stability Board, but I must stress that I have not been party to it since I retired from office last October.

I shall accordingly endeavor to make clear when I am recalling thinking while in office and when I’m offering a view on questions, and a few confusions, I’ve encountered.  I shall explain the analysis of seven issues, as I at least saw and still see them, after outlining the basic strategy for resolving large and complex financial institutions without taxpayer solvency support. The issues are:
-what is the difference between single-point-of-entry (SPE) resolution and multiple-point-of-entry (MPE) resolution?
-why resolution under the control of government agencies rather than bankruptcy under the control of the courts?
-why isn’t there an international treaty, and can cross-border resolution work without one?
-why do most experts in this field advocate that so-called systemic groups be headed by a pure holding company (or, mutatis mutandis, intermediate holdcos for the subgroups of MPE groups)?
-what is the point of regulators requiring that a minimum amount of ‘bailinable’ debt be issued by those groups/subgroups rather than setting a higher minimum common-equity requirement?
-what has this got do with CoCos (contingent capital instruments)?
-can any of this really work in a systemic crisis?
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