Properly equipped, the banking union is thus a key component of a stable monetary union. With the banking union, government finances will be better protected in the future against crises in the banking sector. But we have to break through the vicious circle from another direction, too. We also have to protect banks from government finances running into difficulties.
4  BIS central bankers’ speeches  One of the most important measures in this respect concerns banking regulation. Banks should back government bonds with capital that corresponds to their risk. For one thing, this would strengthen the market mechanism: banks would have an incentive to demand appropriate risk premiums for government bonds. That, in turn, would be an important market signal for governments.