While I’m certain that tough “political” negotiations still lie ahead, I’m nonetheless confident that the preferential regulatory treatment afforded to sovereign debt will be revised in future. And this will realign incentives and risk premiums to prudent levels. A third new element is the recovery and resolution regime that has been agreed globally and implemented across Europe.
It was created to solve the problem of “too big to fail” banks and to keep taxpayers from having to bear the brunt in a crisis. This new core element of the banking regulation and supervisory framework is currently being finalised on the basis of the guiding principles issued by the international Financial Stability Board, or FSB for short.