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.