Doom Loop or Incomplete Union. Sovereign adn Banking Risk

This chapterdiscusses the foremost regulatory advances and policy proposals forthe so-called “doom loop”, i.e. the perverse and destabilizing interconnectionsbetween sovereigns’ and banks’ liabilities. We discusshow 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. We argue 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.