Further questions such as the free movement of labour, goods and services, affect the UK economy as a whole and with it all the clients of banks. Taken together, these headwinds are placing a strain on the earnings prospects of banks.
In many cases, European banks hold bonds from one sovereign only – their home country. Large and undiversified exposure is what makes a sovereign systemically relevant. Hence, the large exposure regime which caps the investment in one single debtor has to be applied to sovereigns as well.