Part IV The European Deposit Insurance System and Policy Perspectives, 15 Doom Loop or Incomplete Union?: Sovereign and Banking Risk »
Giorgio Barba Navaretti, Giacomo Calzolari, José Manuel Mansilla-Fernández, Alberto Franco PozzoloFrom: European Banking Union (2nd Edition)
Edited By: Danny Busch, Guido Ferrarini
This chapter discusses the foremost regulatory advances and policy proposals for the so-called ‘doom loop’, i.e. the perverse and destabilizing interconnections between sovereigns’ and banks’ liabilities. It discusses how the merits of the proposed regulatory reforms are strictly intertwined with the mechanisms of risk sharing being built up and implemented within the banking union, and more broadly within the eurozone. The chapter argues that it is very unlikely that there might be viable solutions to the regulatory treatment of sovereign exposures without a strengthening of risk-sharing mechanisms.