Greater separation between bank and sovereign risks can without doubt be achieved partly through suitable banking regulation which puts strict limits in place in this regard. Improving the banking system’s risk-bearing capacity is also a necessary part of the package. A banking union, too, may make an important and useful contribution.
Core elements of such a banking union would be, first, common banking supervision, and, second, a common resolution regime for banks which get into difficulties. In putting these measures in place, the risk to the taxpayer should be limited as far as is possible. Mutualisation of risk cannot be the goal. The principle of subsidiarity requires that risks be borne where they arise.