that is where economic theory meets economic reality and political economy. In 2008, none of the European countries had a proper bank resolution framework. The U.S. had such a regime (successfully used by the FDIC) for commercial banks, but not for investment
banks and bank holding companies. As U.S. and European supervisors and governments looked into the abyss of not only a systemic banking crisis but a complete melt-down of the financial system, they found themselves empty-handed when considering how to
resolve the failing banks. Using the regular corporate insolvency framework was not an option, as the Lehman Brothers bankruptcy had just shown. So, the only option was a tax-payer funded bail-out of these banks. Over the past nine years,
governments have reacted, introducing bank resolution regimes that combine bail-in rules (i.e., making sure that shareholders and junior bond holders lose their shirts) with ensuring that the financial system and thus ultimately, the real economy, does not
offer. To ensure the latter, options for government support have to exist, though as last resort, not as first resort, as in 2008. Not having such a clause would make it non-credible and result in creditor run and contagion effects at the slightest
sign of trouble.