Markets will only fully trust in SSM supervision if it is clear that banks can be safely wound down without damaging financial stability – otherwise they will expect supervisors to practice forbearance. Moreover, without a strong SRM bank funding costs will continue to be tied to fiscal situation of the sovereign, which will perpetuate financial fragmentation.
To deal with large and complex banking groups, we need an institution that can take swift, impartial decisions. To break the link with sovereigns, it needs to have sufficient resources to back those decisions up. This requires a single resolution authority and a single resolution fund, established at the European level.