As ECB President Mario Draghi said in Firenze on Friday, public risk-sharing through backstops helps reduce risks across the system by containing market panics when crisis hits.
The backstop would be a reserve instrument, activated only if the Single Resolution Fund becomes temporarily short of the resources required for its tasks, even after the owners and eligible creditors of failing banks have borne the losses allocated to them. Financially, the backstop could operate as a credit line in the reformed European Stability Mechanism.