While the banking union will help to protect governments from the fate of banks, it will do little to protect banks from the fate of governments. Hence, the banking union will not suffice to sever the disastrous sovereign-banking nexus which acted as a fire accelerant in the crisis.
And even today, banks in crisis-hit countries in particular are still tempted to over-invest in sovereign bonds, notably of their home country and this tendency has increased further in the crisis. This practice is being encouraged by the preferential treatment afforded to sovereign exposures, which are exempted from the large exposures regime and privileged by low or zero capital requirements.