The cases of Iceland, Ireland and Cyprus are good examples of this. The banking system in Cyprus is currently about 7 times the size of national GDP. By way of comparison, an average banking system in the monetary union is 3.5 times the size of national GDP. This problem has also been fuelled by the Cypriot business model of providing a low-tax environment.
If the banking sector is too large, the national taxpayer will be unable to bear the costs. Consequently, European solidarity will be required to resolve the problems. This is comparable to the case of systemically important banks, which depend on the support of the taxpayer if the bank gets into difficulties.