) ) suggested extending the existing ecb ( european central bank ) floor to the eu level ( eba ( european banking authority ) 2020 ). this would be a first step towards harmonisation and preventing a race to the bottom. the macroprudential policy tools discussed so far are a first line of defence in the goingconcern case. they make banks sufficiently resilient so that they are able to continue operating, even if they incur losses. bank resolution, in turn, limits contagion from the failure of an individual bank to the financial system. resolution can therefore also be viewed as a macroprudential tool, operating in the gone - concern world. a credible resolution framework prevents excessive risk taking. resolution tools ensure that banks can exit the market in case of failure without disrupting the financial system. in this way, a credible resolution framework lowers the expectation of implicit government guarantees. this strengthens market discipline and creates incentives for banks to avoid excessive risk - taking and to become “ too big to fail ” ( tbtf ). banks that are too - big - to - fail have indeed been a risk to public finances for much of the history of modern financial markets. while the tbtf problem will never be eliminated altogether, we have still come a long way in terms of mitigating this risk by setting up frameworks for bank resolution. in europe, the single resolution mechanism ( srm ( singe resolution mechanism ) ) and the single resolution board ( srb ( single resolution board ) ) have been established in the context of the banking union in 2016. so far, the new resolution frameworks have not been tested in a situation of systemic stress. our knowledge of its functioning is thus only indirect. estimates of implicit funding subsidies are a good indicator of whether the tbtf reforms were successful and whether resolutions regimes are deemed credible by markets. if creditors believe that systemically important banks can still count on public support, these banks might enjoy lower funding costs compared to their smaller peers. the financial stability board ( fsb ( financial stability board ) ) found evidence in market data that implicit funding subsidies have indeed declined since the implementation of resolution reforms – but are not yet negligible. [ 14 ] this suggests that resolution regimes are not perceived as being fully credible in the eyes of market participants. resolution regimes need to be not only operational on paper, but also credible in practice. during a crisis, it ultimately requires political will to implement rules and plans that were made ex

ante. removing obstacles to resolution can tilt the balance and enhance credibility. evaluations by the fsb ( financial stability board ) and, more recently, by the srb ( single resolution board ) inform us about the gaps in resolution frameworks that remain ( fsb ( financial stability board ) 2021b, srb ( single resolution board ) 2022 ). the reports show that resolution reform has made significant progress over the past decade, and the system is moving into the right direction. but gaps remain in terms of further removing obstacles to resolution, improving relevant information, and enhancing monitoring of resolution regimes. closing the remaining gaps and being prepared to use the new frameworks needs to go hand in hand. the ongoing review of the crisis management and deposit insurance framework in the eu ( european union ) ( cmdi review ) provides a good opportunity to improve the resolution framework. [ 15 ] the following steps are, in my view, necessary to make resolution more credible and effective : first, competent authorities should intervene earlier and more effectively. resolution authorities face a dilemma : declaring a bank failing or likely to fail ( foltf ) too early may lead to the market exit of a viable institution. declaring it too late bears the risk that liquidity has dried up and losses have accumulated, leaving fewer resources available for resolution. experience with resolution cases in europe shows that, if anything, such declarations have taken place rather late ( deutsche bundesbank 2017 ). the dilemma could be avoided if early intervention were used more actively by competent authorities so that a failure becomes less likely. if a foltf is still needed, it should be taken promptly ( european court of auditors 2021 ). this can be promoted by clarifying the objective elements that are required for a foltf decision and by strengthening the role of the resolution authority. second, discretionary scope in the crisis management framework needs to be reduced. a critical element is the public interest assessment ( pia ) conducted by the resolution authorities. it determines whether a failing bank will be resolved or whether a national insolvency procedure is preferable. at present, incentives are such that national insolvency proceedings may be used in order to exempt creditors from loss absorption and to grant public support to prevent adverse effects on financial stability. eu ( european union ) state aid rules have to be taken into account if aid is granted in the context of national insolvency proceedings. yet, the assessment of effects on financial stability in the pia and under