And this is where banking regulation comes into play. The more equity and liable (ie bail-inable) debt capital that banks have, the better equipped they are to withstand sovereign debt restructuring. This is why it is so important that regulations on increasing liable capital are taken now at both international and European level.
This will also boost the financial system’s resilience if it is faced with a negative shock. If banks had been better capitalised, the consequences of the financial crisis would not have been so severe.