Further, measures have been set in place to mitigate the effects of banking crises, when they occur, on the public coffers and the economy in general. As regards solvency requirements, the reform agenda has practically concluded, while awaiting the Basel Committee’s final agreement on the so-called Basel III accord. Today I shall focus on the second objective of the international reform agenda, i.e. on the package of measures aimed at smoothing the management of bank crises while preserving financial stability and minimising the use of public funds. At the base of the regulatory reform in this area is the work of the Financial Stability Board (FSB) conducted at the behest of the G-20 following the Lehman Brothers debacle. In 2011 the FSB published the Key Attributes of Effective Resolution Regimes for Financial Institutions, which lay down the principles for ensuring an orderly resolution of banking institutions. Indeed, the Key Attributes specify the powers and tools the administrative authorities should have to see through the orderly resolution of non-viable banks, ensuring the maintenance of their core functions and their restructuring at the least possible cost to the taxpayer. The Key Attributes further envisage the availability of recovery and resolution plans for each institution that set out a roadmap ahead of a potential crisis situation. Lastly, they establish the principle whereby bank shareholders and creditors are those who should bear the bulk of the costs of the crisis.
those which, given their significance, would not be wound up in the event of insolvency, are required to hold a minimum volume of loss-absorbing instruments in the event of resolution. This is known as the MREL (Minimum Required Eligible Liabilities) requirement. 4/10  Accordingly, the European regulations are precisely tailored to the new resolution principles and contain provisions that minimise the likelihood of crises resulting in the disbursement of sizeable public funds. That said, the challenges posed by the practical implementation of these provisions are manifold. For example, the relative rigidity with which it is stated that receiving public aid generally implies the non-viability of an institution and, therefore, facilitates the activation of the resolution (or, where appropriate, winding-up) process, considerably constrains the supervisor’s management of financial crises. It might be advisable to make this aspect of the regulations more flexible, albeit maintaining, in any event, the subjection of any public support to the prevailing State aid arrangements managed by the European Commission. Yet the main challenge for the industry and its supervisors stems, to my understanding, from the potential implications of the new resolution framework for banks’ business models and for the structure of the banking sector. Allow me to expand on this. The demands of the regulations would point, in principle, to a configuration of the financial system that, in simple terms, would comprise two groups of relatively differentiated banks.