One issue we definitely have to address is the connection between banks and the public sector. The banking system is closely linked with public finances. This link was a major driver  2  BIS central bankers’ speeches  of the crisis in the euro area. So, let us now take a closer look at the link between banks and states.
When the financial crisis unfolded and banks everywhere ran into difficulties, governments had to step in to avoid a breakdown of the entire financial system. This experience is a real world example of the “too big to fail” problem which I discussed a moment ago. However, saving banks is a costly endeavour for governments. Let’s take Ireland as an example.