The forthcoming review of the Alternative Investment Fund Managers Directive provides an opportunity to resolve any issues that may hinder the future implementation of this leverage limit. Moreover, as the ESRB recently recommended, for the investment fund sector, the role of authorities when using their powers to suspend redemptions needs to be further specified in law. In addition, European Securities and Markets Authority should have a general facilitation, advisory and coordination role in relation to the National Competent Authorities’ powers to suspend redemptions in situations where there are cross-border financial stability implications. The need for a European safe asset The stability and integration of financial markets in the Monetary Union is also closely related to the creation of a euro area-wide safe asset, for a number of reasons. First, it could help reduce the excessive home bias in banks’ sovereign exposures, which exacerbates the feedback loop between banks and sovereigns. Reforms to the resolution regime (i.e. BRRD) have tackled the issue from one direction, from banks to the sovereign. However, at present, there is no clear solution for tackling it in the other direction, from the sovereign to the banks. The creation of a euro area-wide safe asset, composed of a pool of sovereign bonds, would lead to a reduction in the home bias of banks’ portfolios by facilitating de-risking and diversification. Second, a euro area safe asset would be crucial for the financial integration and the capital markets union.

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