welcome address ignazio visco governor of the bank of italy bank of italy workshop on : “ the crisis management framework for banks in the eu. how can we deal with the crisis of small and medium - sized banks? ” online event, 15 january 2021 • it is my pleasure to open this workshop on “ the crisis management framework for banks in the eu. how can we deal with the crisis of small and medium - sized banks? ” as is well known, in 2015 the bank recovery and resolution directive ( brrd ) introduced a new crisis management regime for the european union. the purpose of the directive was to tackle the “ too - big - to - fail ” problem and eliminate the need for bail - outs with public funds in the event of bank failures. • the focus of this reform – in line with the key attributes of effective resolution regimes for financial institution published by the fsb in the aftermath of the global financial crisis of 2007 - 08 – was on systemically important banks, i. e. those banks whose failure would likely threaten financial stability and have severe repercussions on the real economy at home and abroad. during the global financial crisis, as well as in previous crisis episodes, the bail - out of such institutions was very costly for governments and, ultimately, taxpayers. therefore, the solution envisaged at the global level was to internalise the losses through the implementation of the “ bail - in ”, the main tool underpinning the new resolution framework. by shifting the cost of the crisis from taxpayers to investors and creditors, the framework also intended to reduce moral hazard and restore the level playing field for larger and smaller banks, by eliminating the implicit subsidies enjoyed by the former. • however, less attention has been paid so far to banks that are not systemic, namely the small and medium - sized banks that, in the european union, represent the vast majority. so far, our understanding has been that the new resolution regime is only applicable to a small subset of banks and banking groups : in the euro area only around 200 banks out of a total of about 3, 000 as of end - 2019. any crisis among the remaining banks should therefore be dealt with via national insolvency procedures. • yet small and medium - sized banks contribute to a great extent to the financing of the economy. less significant institutions ( lsis ) hold 19 per cent of the total assets of the banking sector in the euro area ; in some countries – such as austria, germany

##insured depositors or senior bondholders should participate in absorbing losses in order to fend off this risk seems a feeble one. in the case of smaller banks, in fact, these are often individual households and small firms, who are not able to adequately monitor financial intermediaries. forcing them to do so, even supposing this were possible, would entail substantial inefficiencies, not to mention the risk of triggering bank runs. moreover, we must also bear in mind that imposing losses on the creditors of small and medium - sized banks in the absence of adequate mrel buffers would end up hitting their deposits, with possible negative spillover effects on other small banks. • today ’ s workshop provides an important opportunity to discuss these issues and explore views and suggestions that, hopefully, will contribute in a constructive way to the debate on how to improve the crisis management framework for small banks. so let me thank all the presenters, discussants and panellists who will share their views with us and provide useful insights on how to foster a safer financial system and a better economy. designed and printed by the printing and publishing division of the bank of italy