Many countries protect their domestic banking markets by ring-fencing capital and liquidity. Unresolved home/host issues may discourage cross-border M&A activity, because they prevent banks from freely allocating capital and liquidity across the entire banking group.
A serious disadvantage is that the method presupposes that the bank problems can be resolved relatively quickly; otherwise the difficulties compound, leading to much greater problems when they ultimately materialise. The handling of problems among savings and loan institution in the United States in the 1980s is a case in point.