But neither the SSM nor the SRM will solve the fundamental problem of the, in some cases, very close ties between banks and member-state governments in the euro area. This can lead to potentially threatening interactions in a crisis event.
During the crisis, distress in the banking system of some countries meant that their governments, too, faced considerable financial difficulties on account of the necessary public rescue commitments. However, this hazardous “doom loop” between banks and their sovereigns also means that sovereigns, in turn, can have a negative impact on banks.