For example, regulators might want to carefully assess the (regulatory) incentives banks have to hold excessive amounts of risky sovereign bonds, and the collateral rules that are used by central banks and in wholesale markets could be reconsidered. The link between sovereign and bank credit ratings should also be carefully examined.
Rules and markets should not be seen as mutually exclusive, but as mechanisms that complement and reinforce each other. The challenge would be not only to limit the intermediary’s exposure to a given sovereign borrower considered in isolation, but also to guarantee that intermediaries can survive even if debt restructuring in one country triggers restructuring in others.