The requirement is designed to mitigate contagion, fire-sale, and run risks by providing comfort to depositors, short-term debt holders, and counterparties of the operating subsidiaries of the firm, since the long-term unsecured debt issued by the top-tier holding company would be structurally subordinated to the claims on the operating subsidiaries.
If fiscal consolidation is perceived by the private sector as a credible sign that public spending will be permanently lower in future years, households will revise upwards their expected permanent income in anticipation of lower future taxes. Therefore, current and planned consumption will also increase.