We are calling for a phasing-out of the current zero-risk weighting and exposure limits for government bonds. Third, we have to find a way to make private risk sharing more effective in the euro area. In the US, about 65 % of an economic shock in one state is cushioned by private risk sharing in the form of cross-border loss sharing and cross-border borrowing.
The system’s exposure to market confidence was enormous. Through all of this, a mirage formed of relentlessly expanding profitability in the financial sector. In the United States, between 2000 and 2006, corporate profits in the sector averaged over 36 per cent of total profits. It appeared briefly that finance was the ruler, rather than a servant of, the real economy.