Europe’s sovereign debt crisis has proven particularly pernicious. A key reason for that was the strong link between banks and states. Banks’ fate was inextricably mingled with their respective sovereign, what was alluded to as the doom-loop. From a euro area perspective, banks were under-diversified, exposed to too much concentration risk. One interesting answer to this issue could be the creation of a – synthetic – European, i.e. non-national, safe asset – without risk-sharing. Sovereign bond backed securities (SBBS), designed to provide diversification and thus de-risking benefits, could perform a stabilizing role. In the fall of 2016, under the chairmanship of Philip R. Lane, Governor of the Central Bank of Ireland, the European Systemic Risk Board launched a comprehensive study to assess the feasibility as well as cost and benefits of such an approach.
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The DIW Lectures on Money and Finance bring together representatives of government, legislatures, the financial sector, think tanks, and academia to discuss how policy makers and monetary authorities can create policies and regulations that foster a more sustainable and stable financial system. Together with the speaker, we will debate questions revolving around crucial challenges for modern central banking, financial market regulation and stability and sustainability of financial systems.