The current banking regulatory framework assigns EU government bonds a risk weight of zero. Since the European debt crisis, there has been increasing controversy over eliminating this equity capital privilege, which is viewed as contributing to the close relationship between state and bank...

The European sovereign debt crisis illustrated how the stability of the entire financial system suffers when banks and sovereigns become too intertwined. However, there has been seemingly little success in reducing the bank-sovereign nexus in the decade since the crisis. As this Weekly Report...