bis central bankers ’ speeches as with fiscal reforms, risk - sharing mechanisms should be established only if powers to control risk - taking have been delegated to the european level as well. hence, a de - risking of banks is necessary before further steps towards a further mutualisation of liability in the form of a common dgs can be taken. as regards policies that contribute to mitigate risks in the banking sector, regulatory reforms that limit banks ’ exposure to sovereign risk are crucial. therefore, reforms of the current regulatory treatment of sovereign risk should be a pre - condition for further risk - sharing mechanisms. because sovereign debt is not per se a risk - free asset, regulation should address both, credit risk and concentration risk of sovereign exposures of banks. otherwise, effects of sovereign distress would be mutualised under the common deposit insurance system via the direct effects on its national banks. in addition, there are many national and economic policy measures which, directly or indirectly, affect the risk profiles and thus the solvency of banks. for instance, differences in national insolvency laws have direct consequences for the valuation of banks ’ assets and the burden that creditors must bear in the event of insolvency. hence, reforms need to strike a balance between retaining national discretion over domestic policies while, at the same time, preventing national sovereignty from risk - shifting to the european level through ( changes in ) regulations affecting bank solvency. the preconditions for a common deposit insurance scheme will not be met before these issues have been resolved. the capital markets union : enhancing channels for private sector risk - sharing the focus of the banking union has been on markets for debt capital. the capital market union can complement the banking union by supporting the development and integration of european capital markets beyond the banking sector, and by creating additional channels for private sector risk sharing. developing and integrating markets for equity capital through the removal of impediments to efficient, non - distorted market outcomes can play an important role in this regard ( deutsche bundesbank 2015b ). integrated capital markets contribute to risk sharing among investors, which can generate welfare gains. in integrated markets, local risks are shared amongst investors from different regions. individual investors can safeguard themselves against local income risks by diversifying their equity and debt - financed investment across borders. as the nominal exchange rate cannot adjust in a currency union, cross - border risk sharing plays an important role in balancing asynchronous business cycles and thus in supporting the stability of the currency union

measures ” such as the provision of funds from the rescue packages, offer pain relief. they help to buy time for the necessary adjustments, but all they actually do is fight the symptoms. they cannot eliminate what caused the crisis. it will take time until the causes of the crisis have been treated. this treatment should seek to remedy unsound developments at the national level while stabilising the framework of monetary union on a sustained basis. thus, the very first priority must be to regain confidence in the soundness of the public finances of individual countries, in the stability of their financial systems and in the competitiveness of their economic structures. this is where the adjustment programmes come in, providing assistance with conditions attached or promising “ solidarity in exchange for solidity ”. but at the same time, this assistance undermines the no bail - out clause to a greater or lesser extent, depending on the form it takes. but it ’ s not just a matter of correcting national policy. just as an earthquake reveals how structurally unsound a building is, so the crisis has exposed the shortcomings in the framework of the monetary union. what is more, the architects of the maastricht framework underestimated certain elements which exacerbated the crisis, such as the contagion effects between the individual countries or between banks and governments as well as the significance of national macroeconomic imbalances. essentially, there are two possible paths to a more stable monetary union. either we dare to take the step towards deeper political integration or we enhance the current framework and strengthen the countries ’ individual responsibility as a constituent element of the monetary union. deeper political integration could, for example, be a fiscal union. however, a fiscal union must not simply mean a greater mutualisation of liability : that would be a transfer union. a serious fiscal union would require the member states to transfer national sovereignty to the community level by giving the community the necessary right to intervene in the event of unsound public finances. liability and control must be kept in balance if the incentive to incur debt, which is inherent in the monetary union, is not to be increased and if the monetary union is to prevail as a stable monetary union. bis central bankers ’ speeches such a transfer of sovereignty would be a radical move and require wide - ranging legislative changes nationally and at the european level. above all, such a step towards greater integration would need not just political support but also public backing from the individual countries. on