No single developed nation appears to have a monopoly on best-practice risk measurement techniques, if innovations in complex financial products are any indication. For example, European banks were market leaders in introducing CLOs, or collateralized loan obligations. In the field of asset-backed commercial paper facilities, US banks were the initiators, but now European and Japanese institutions are significant players.
The European institutional weaknesses were clearly reflected in financial markets’ risk assessment. The sovereign spreads came to be determined by two factors, one national and one European, linked respectively to the flaws of certain countries’ economies and public finances (sustainability risk), and to the incompleteness of European construction and the attendant fears of a break-up of the monetary union (redenomination risk).