We can’t assume that with their limited resources, the central bank or resolution fund will fully take care of funding in and immediately after resolution. Even a well-recapitalized bank may experience increased liquidity needs generated by market volatility, and by asymmetrical information on the bank’s viability.
Market participants may be discouraged from providing liquidity – and existing creditors may be encouraged to run – if there is uncertainty over the new entity’s ability to meet increased liquidity needs. For banks that are solvent and sound following resolution, the first port of call would then be the standard liquidity facilities of central banks.