Provision was made in the Programme’s financial envelope for up to € billion in cash to be borrowed by the Government and injected into the banks if it proved necessary following the stress test. The Central Bank shared the view of other Irish officials that, if € billion were really needed for that purpose, debt sustainability of the Irish government would be likely unattainable.
A timely resolution of a bank should avoid that problems in one bank spill over to other banks, possibly affecting European financial stability. Moreover, the uncertainty surrounding the use of ad hoc solutions in Europe, as we all saw recently in the case of Cyprus, has shown the importance of establishing a clear and credible legal framework to underpin the resolution of banks.