This tightens the negative feedback loop between banks and sovereigns further still. And that is why we need limits on large exposures to individual governments as a vital addition to appropriate risk-weighting. I am well aware that such a reform at the current juncture of the crisis might exacerbate the financing problems that some countries are experiencing.
7 Guiso, L., Herrera, H., Morelli, M. and Sonno, T. (2018), “Global Crises and Populism: the Role of Eurozone  Institutions”, CEPR Discussion Paper DP12944, 20 May.