But this does not apply to exposures to sovereigns, which are exempt from such rules. Furthermore, sovereign exposures are also privileged by low or zero capital requirements, as they are seen as more or less risk-free. Reassessing the regulatory treatment of financial institutions’ sovereign exposures is crucial.
More effective financial market regulation is necessary to ensure that a “doom loop” between sovereigns and banks cannot emerge. But let me come back to fragmentation. We do not only observe natural differences and fragmentation in financial markets, but also in the real economy. And I would claim that we should not interpret this generally as a malfunction there either.