Both the big banks and the bank regulator are stepping up work on "living wills" as an alternative to the capital surcharge that could be needed if banking regulations in Australia follow the principles being worked out by the Financial Stability Board.The Australian Financial Review reports that the Australian Prudential Regulation Authority met the banks last week to discuss "trigger points at which they would activate pre-agreed contingency plans to shut down business and sell off core operations to protect core operations."Several national regulators are working with the banks to devise detailed plans for the resolution of any failure of a systemically important bank as an alternative to extensive public sector support for a troubled bank - and in the event that no other commercial recapitalisation, or takeover, is feasible.Last month, the Big Four Australian banks avoided being caught by the higher capital requirements to be imposed on around 30 so-called "G-SIFIs". The G-SIFIs are the global systemically important financial institutions, such as HSBC, JP Morgan and Deutsche Bank, whose failure could endanger many countries' financial systems. No Australian bank is considered to be either large enough or connected enough to qualify.But the next stage of the Basel framework will involve the so-called "domestic SIFIs" or D-SIFIs, a category that clearly includes Australia's Big Four.Some nations on the Financial Stability Board would like to impose rules for all nations regarding the treatment of D-SIFIs.On Monday, the FSB said it would publish two papers in "the coming days" on how it will assess the global systemic importance of banks; what extra capital they should carry; and how failing G-SIFIs should be dealt with.