A further step in making cross-border financial data more useful is to establish the currency exposures embedded in these positions. This is a fundamental issue since the response of an economy to exchange rate movements depends on its net foreign currency exposure.
Crucially missing was a truly integrated banking system that could share risk across countries, with a harmonised resolution framework and a European public backstop. Thus the onus fell onto sovereigns to support their national banking sectors, strengthening the two-way risk between European banks and their national governments.