And this depends in turn on several factors at the national level including the efficiency of insolvency regimes, out-of-court restructuring frameworks and judicial systems. For example, differences between countries in the speed of insolvency proceedings can affect the ability of banks to seize collateral, and hence influence their incentives and ability to resolve NPLs. To illustrate, according to the World Bank, to resolve insolvency in Italy takes 1.8 years, compared with just 0.4 years in Ireland. 6 Ineffective insolvency systems also render out-of-court restructuring frameworks less operable, as they fail to act as a credible threat, thereby dissuading creditors and debtors from agreeing on a restructuring. This latter point may be particularly important because, in a debt overhang environment, the overall efficiency of NPL resolution and the cost for society hinges crucially on the ease with which debt can be restructured outside of the insolvency framework. For firms whose business models remain fundamentally viable, liquidation may be economically inefficient and some form of voluntary debt restructuring could be essential to restore their viability and allow them to borrow and invest again. Several countries have already made progress in reforming their national legislation. To give just one example, in Portugal the government introduced new regimes for fast-track in-court and formalised out-of-court restructuring in 2011 and 2012. Experience has shown, however, that the effectiveness of an improved legal framework depends on various accompanying factors, such as improving debtor-creditor coordination and building sufficient administrative and judicial capacity to successfully mediate restructuring.

8  The Herfindahl-Hirschman Index (HHI) is defined as the sum of the squares of the market shares of all firms within the industry, where the market shares are expressed as fractions. As a general rule, an HHI below 1,000 signals low concentration, while an index above 1,800 signals high concentration. For values between 1,000 and 1,800, an industry is considered to be moderately concentrated. See ECB Banking Structures Report, October 2014. BIS central bankers’ speeches  5  during the crisis, with negative spillovers to credit. Thus, there would be macroeconomic benefits not only to within-country consolidation, but also to cross-border consolidation. In a single market, we would expect the private sector to drive such a rationalisation process, especially given the efficiency gains that can be reaped from cross-border M&A in terms of, among of things, information technology and corporate overhead costs. 9 There are several explanations for why this has not happened, but part of the reason seems to be the effect of a fragmented supervisory and resolution regime, which raises the costs of entry for crossborder banks and reduces the economic synergies of integration. For example, industry surveys suggest that an important factor in low cross-border M&A before the crisis was opaque supervisory approval procedures. The high compliance costs created by different sets of national rules and interacting with several different authorities also affected the deal economics.