Fiscal Capacity to Support Large Banks

The early 21st-century global financial tumult made it difficult for some countries to muster the necessary financial resources to support their banking systems. In the euro zone, the capacity of members to subsidize their largest banks differs, according to each country’s economic strength. In 2014, the European Union enacted a new stabilization tool: The “bail-in regime” allows private funds to invest in failing banks, relieving some of the burden on taxpayers for bank rescues. But the measure remains untested, and the scheme does not appear to suit potential collapses of systemically important banks. Policy...