Supervisors should avoid any temptation to increase the supervisory factors for potential future exposure to address these crisis scenarios, which have vastly different implications for different combinations of contracts and counterparties.
The financial crisis demonstrated that an unstable and highly fragmented financial sector represents an existential threat to Monetary Union. Europe has translated key lessons of the crisis into a more solid framework by establishing the banking union. The euro area’s largest banks are now supervised at the EU level and their failure is addressed centrally.