The current minimum internal loss absorption requirements (8% of total liabilities and own funds) and limitations on the amount of the use of resolution funds (5% of total liabilities and own funds) prevent it, which may subject senior debt and even unsecured deposits to risks incompatible with financial stability.
In this context, the IMF’s recent proposal of a ‘financial stability exemption’ should be further explored. Recent experiences have put the harmonisation of EU banks’ liquidation regimes on the agenda of policymakers.