Capping the amount of debt issued by a single sovereign that a bank can hold does not necessarily mean that a bank will hold less sovereign debt in all. It can still buy the debt of other sovereigns, up to the individual limit. But what it does mean is that banks cannot put all their sovereign eggs into one basket, so to speak.
And this will go a long way towards ensuring that a sovereign debt restructuring will not bring down a country’s national banking system. Besides, there is no compelling economic argument why banks should be the main financiers of sovereigns in the first place. Banks’ long-standing ties with their private clients allow them to glean information about firms and managers.