with the ensuing impact on the real economy, ultimately reinforcing the sovereign - bank doom loop. the european commission ’ s forthcoming study on the divergences in the insolvency frameworks for banks under different national laws is thus welcome. ix however, in the present circumstances we are not in a position to move immediately towards the full harmonisation of eu banks ’ liquidation regimes. instead, efforts must be made to establish an enabling framework for the orderly management of failing banks of locally systemic importance, combining elements of the resolution and liquidation frameworks – akin to the fdic approach in the usa – while minimising losses and protecting depositors and non - financial borrowers. in that regard, the existing liquidation regime of small banks in italy – compatible with the internal market and to which the european commission did not raise objections – could be a useful first step for our discussions. x such an enabling framework should include the definition of high - level principles to be agreed by all member states for application at national level. possible paths might include : • the establishment of special insolvency proceedings, with recourse to administrative options, assigning to a liquidating authority some of the instruments currently envisaged in the brrd, as an alternative to the court - led liquidation regime. the liquidating authority and the funding sources available would need to be identified. • the use of dgss for deposit transfers abiding by the least cost principle. for that, the recent judgment of the european court of justice on the case of banca tercas xi could inform the discussion on the role of dgss in liquidation beyond the pure payout approach xii, as well as the associated state aid issues. • the liquidating authority having the option to offer guarantees or enter into profitand loss - sharing regimes. this framework could be applied in situations where resolution : ( i ) is not considered to be in the public interest, and when it ( ii ) might not be the best approach given the constraints to its application, namely through the lack of loss - absorption capacity. the introduction of such a new regime would also raise the following questions, among others : • how to ensure that business models, size and systemic importance are part of the equation? • can the bail - in of senior unsecured debt and uncovered deposits with the accompanying destabilising effects on financial stability be avoided? • should institutions subject to liquidation be required to hold an additional bail - in buffer ( mrel

of the resolution funds that can be used ( 5 % of total liabilities and own funds ) subject senior debt and even unsecured deposits in mid - sized banks with traditional business models to risks incompatible with financial stability. • in view of such risks, recourse to alternatives often perceived as attempts to circumvent the existing rules has been observed in some member states. • some also argue that bank liquidations have become an easy way out for european authorities as the ensuing financial and political costs lie with national authorities. vi the risks of regulatory - driven consolidation the fragilities of the second pillar – just described – have been linked to calls to speed up consolidation as a means to increase profitability and efficiency in the banking sector, fostering the creation of pan - european banks able to compete with larger institutions outside europe. in this regard, the perception that consolidation is regulatory - driven can be disruptive to the much - needed trust in the single rule book. this perception is justified by the increasing complexity of regulation and potentially disproportionate requirements such as mrel which only large banks seem able to comply with, and the speed to de - risk. although the supposed increased efficiency associated with size is yet to be demonstrated, it cannot be disregarded that addressing too - big - to - fail ( and too complex to supervise or resolve ) was one of the main purposes of banking union. we should not resolve a problem by creating an even bigger one. the lauding of consolidation also ignores the fact that the current incomplete architecture of banking union creates significant imbalances across home and host countries in cross - border operations, which come to the fore in crisis situations. this is one of the reasons why it has been so difficult to implement capital and additional waivers on liquidity and remove options and national discretions. in this context, regulators and supervisors should neither help nor hinder m & a. instead supervisors and regulators should provide the market a stable view of the supervisory and regulatory frameworks that allow market participants to take their informed decisions. way forward www. bportugal. pt while political circumstances prevent decisive progress in banking union, a number of intermediary solutions can nevertheless be implemented to address the major sources of instability, paving the way to build trust among member states. it seems now sufficiently clear that the first best solution would be to amend the brrd in relation to the 5 % and 8 % thresholds. if this is politically unfeasible, the im