The other side of the coin: Adequate regulation Let me demonstrate this reasoning with respect to the regulatory treatment of sovereign bonds, which plays a key role in strengthening the overall architecture. There is not much dissent, in fact, over the question as to whether sovereign debt is subject to economic risk. Puerto Rico declared bankruptcy just a few days ago.
In Europe we have been witnessing debt haircuts and other symptoms of sovereign overburden. By and large, the risk of sovereign default may be low, and sometimes very low, but it is not zero. If we want regulation to be risk-adequate, economic risks will need to find their way into the rules for banking. Our existing regulatory set-up is quite well-developed in this respect.