However, if the buffers are low relative to the risks that are building up when the event has already occurred there is the risk of excess deleveraging and procyclicality. This is where public aid comes into play. This may assist the recapitalization of the banking system thereby counterbalancing excessive deleveraging pressure.
One example is the “European Passport” for issuers. The Forum of the European Securities Commissions (FESCO) will be presenting a proposal on this shortly. At present, the creation of uniform regulations, combined with an intensification of cross-border cooperation in committees represents a better course of action than a “Big Bang”.