have to see through the orderly resolution of non - viable banks, ensuring the maintenance of their core functions and their restructuring at the least possible cost to the taxpayer. the key attributes further envisage the availability of recovery and resolution plans for each institution that set out a roadmap ahead of a potential crisis situation. lastly, they establish the principle whereby bank shareholders and creditors are those who should bear the bulk of the costs of the crisis. using the parlance of the profession, the “ bail - out ” ( or rescue of the bank with public funds ) disappears and is replaced by the “ bailin ” ( generation of own funds, capable of absorbing losses, converting debt instruments into capital ). 3 / 10 the internationally agreed principles have been passed through to european regulations through the bank recovery and resolution directive ( brrd ). this framework has been completed within the banking union with the establishment of the single resolution mechanism, a system comprising a central authority, the single resolution board ( srb ) – which adopts the relevant decisions for significant banking institutions – and the national resolution authorities that participate in the srb and retain direct responsibility for the less significant institutions. this mechanism has a single resolution fund, endowed with contributions from the industry, that will enable financial support to be afforded to resolution processes. despite the undeniable progress that the new resolution framework adopted in europe entails, its practical implementation is subject to major challenges that i would like to highlight today, drawing on the fact that the brrd will shortly be revised on the basis of a recently submitted legislative proposal by the european commission. accordingly, i shall first refer to the general aspects of the european resolution regulations. next, i shall look at the loss - absorption requirements for bank creditors, which is one of the central aspects of the regulations. and i will conclude with some brief comments of a more strategic nature. 2 general aspects of the european regulations the european union, as reflected in the fsb ’ s second peer review on resolution regimes published in 2016, is one of the jurisdictions where the key attributes have been most rigorously implemented. allow me to highlight some of the main features. first, the regulations consider resolution as an alternative mechanism to ordinary insolvency procedures in the mercantile realm, applicable to banks only in specific circumstances pertaining to the public interest. in particular, resolution shall only be applicable to those banks whose failure may generate risks to financial stability, given that they perform critical functions. second, the use of public funds to support

many cases weightier determining factors than solvency requirements themselves for financial institutions. it is thus necessary to harness the ongoing revision of european legislation and the subsequent re - definition of the policies to be pursued by the resolution authorities so as to fine - tune demands in a way that provides for the orderly adjustment of the industry to the new regime. as earlier discussed, adding flexibility to some requirements and setting transitional arrangements for others may be of help here, while also reinforcing the authorities ’ ability to manage crises in the short and medium term. all told, institutions should be mindful that the new resolution framework will require those banks that exceed a certain size and are liable to generate systemic risk to ensure that their balance sheet structure allows their resolution at the expense, essentially, of their shareholders and creditors. they should, therefore, ensure that their business model is compatible with the issuance of loss - absorbing instruments on the capital markets and that their income statements allow for the remuneration of the supplementary risk that the new resolution regime entails for holders of bank debt. it thus seems likely that several institutions will face objective difficulties adjusting to the recently established resolution framework. these new regulations, therefore, contribute to reinforcing the perception of excess capacity in the sector and, foreseeably, they will contribute to promoting a change in the industry structure that will correct such excess by means of consolidation processes giving rise to banks more capable of comfortably complying with the new demands. the supervisor ’ s role essentially consists of setting in 9 / 10 place the means needed for this seemingly inevitable adjustment process to unfold in as orderly a fashion as possible. 10 / 10