Ignazio Visco: The crisis management framework for banks in the EU. How can we deal with the crisis of small and medium-sized banks?

Welcome address by Mr Ignazio Visco, Governor of the Bank of Italy, at the 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.

The views expressed in this speech are those of the speaker and not the view of the BIS.

• 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