Recital (19)

The winding up of an entity under normal insolvency proceedings might, in some cases, jeopardise financial stability and interrupt the provision of critical functions. This could be the case, for instance, where insolvency would likely result in losses on a material share of deposits or significant difficulties in the continuity of access to deposits, and where the Board considers that those losses or those difficulties could have a significant impact on the provision of critical functions, on financial stability through contagion or on the real economy. In such cases it is highly likely that there would be a public interest in placing the entity under resolution rather than winding it up under normal insolvency proceedings. The assessment of whether the resolution of an entity is in the public interest should also reflect, to the extent possible, the difference between, on the one hand, funding provided through industry-funded safety nets, namely the resolution financing arrangements or the DGSs, and, on the other hand, funding provided by Member States from taxpayers’ money. Such funding provided by Member States bears a higher risk of moral hazard and a lower incentive for market discipline. Therefore, when assessing the objective of minimising reliance on extraordinary public financial support, the Board should prefer funding through the Single Resolution Fund (the Fund) or the DGSs to funding through an equal amount of resources from the budget of Member States.