Third, European support must come at the end of a sequential process, involving the following steps: •  one, the beneficiary banks must undergo a thorough and independent economic evaluation of their assets to ascertain their real capital needs and reveal any legacy problems;  •  two, those banks must be assessed to have a viable business model and so be deserving of additional capital, otherwise they should wound down;  •  three, if the banks are to be kept going, private sector sources should be exhausted first – meaning bailing-in of shareholders and bondholders, and if needed, use of the bank-funded resolution financing;  •  four, if there are still capital shortfalls, the financial resources of the beneficiary Member States should be drawn on;  •  only in the very last step, would European public funds be used.
2  BIS central bankers’ speeches  This pecking order underscores that, the stronger the European resolution framework, the lower the eventual costs for European taxpayers. The more the financial sector can be bailed- in, the less it has to be bailed- out.