The aggregate leverage (asset-to-equity) ratio of large euro area banks remains comparatively high by international and historical standards. 17 The adverse feedback loop between banks and sovereigns, in which doubts about the solvency of the sovereigns feed doubts about the solvency of the banks, and vice versa, will be broken more readily by the establishment of a true banking union.
16  See, for example, V. Acharya and S. Viswanathan, “Leverage, Moral Hazard and Liquidity”, Journal of Finance, Vol. 66, No 1, 2011; F. Allen and D. Gale, “Financial Contagion”, Journal of Political Economy, Vol. 108, No. 1, 2000; and M. Brunnermeier and L. H. Pedersen, “Market Liquidity and Funding Liquidity”, Review of Financial Studies, Vol. 22, No 6, 2009.