Hi, Alex - my understanding (and hopefully someone who knows better will correct me if I’m wrong) is that circulation rules will always be defined at the location (s) level. So, if you had two “locations” at one “library” you would have at least two circulation rules - even if those rules are exactly the same.
For a consortium, the design of circulation rules is dependent on the implementation model: (1) cross-tenant or (2) shared tenant. In a shared tenant (where all libraries in the consortium are in one tenant), the consortium would be the institution (a). I think you would basically have a three-level hierarchy for each member library rather than four levels. For the cross-tenant model (i.e. each library in its own tenant), each library would have the freedom to design its own hierarchy and circulation rules as it chooses.
How circulation across libraries in a consortium works is still a work-in-progress. The Consortia SIG has discussed this at some of our recent meetings. You can see some notes from those discussions on this Jira issue: https://issues.folio.org/browse/UXPROD-795.