But further action will be needed if we are to prevent this vicious circle from simply being shifted from the national to the European level. That means putting an end to the preferential treatment given to sovereign risk in bank balance sheets.
Banks’ substantial exposure to sovereign risk – which even increased in  4  BIS central bankers’ speeches  some quarters during the crisis – owed something to the 0% risk weight for government bonds and the absence of upper limits for lending to governments.