While bailouts and monetary financing are prohibited under the Maastricht treaty, sovereign debt is nonetheless treated as risk-free in the capital regime for banks. Danièle Nouy, the chairwoman of the European banking supervision, said: “Sovereigns are not risk-free assets. That has been demonstrated, so now we have to react.” I totally agree with her.
5 In the months since then, and with the strong encouragement of the federal banking supervisors, many of these largest institutions have raised billions of dollars in new capital, improving their ability to withstand possible future losses and to extend loans as demand for credit recovers. Meanwhile, we have also continued our efforts to ensure fair treatment for the customers of financial firms.