The liquidation of two Italian regional banks has showed the limitations of the EU’s bank resolution framework. It also opens a potential legal loophole allowing member states to use their national insolvency rules to avoid applying bail-in rules.

Veneto Banca and Banca Popolare di Vicenza (BPVi) were bailed out earlier this week in what is so far the largest bank rescue in Italy. Finance minister Pier Carlo Padoan said the government had initially committed €5 billion ($17.1 billion) to the cleanup of these two banks, which were previously ranked in the top 15 largest lenders in Italy. The total cost to the taxpayer could reach as much as €17 billion, which also includes state guarantees for losses stemming from non-performing loans (NPLs). Intesa Sanpaolo agreed to buy both banks’ performing loans and deposits for a symbolic euro.

Veneto Banca and BPVi are hitting troubled watersThe situation stands in...