Examples of this firewall include, but certainly are not limited to
- Suspension of mark-to-market accounting and the introduction of mark-to-make-believe for opaque, toxic structured finance securities.
- Purchases of bank equity securities by the government that hosts the bank.
- Regulatory forbearance on recognition of problem loans.
- Stress tests where the regulators make explicit representations about the each large bank's book capital.
- Market discipline on the banks stops them from taking unnecessary risks and gambling on redemption while they are retaining earnings to pay for their current losses.
- It restores confidence in the banking system because market participants can assess the risk of the individual banks and see that they are not hiding any losses.
- It frees up the sovereign to issue debt to support economic growth rather than to absorb the losses in bank book capital.