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

banks ( g - sibs ) have been agreed upon last year. in europe, minimum requirement for eligible liabilities ( mrel ) apply. some discretionary scope in the use of the bail - in instrument, as granted by the brrd and the rules on state aid, may be necessary to prevent systemic contagion. but this flexibility opens a door to political influence and may threaten the credibility of the instrument. discretionary exceptions should, therefore, be made only under rare and strictly defined circumstances. a statuory “ systemic risk exemption ” that would require, for instance, a strong majority among relevant stakeholders such as finance ministers for any deviation from a bail - in in could be an appropriate institutional hurdle. reform complex decision - making in the ssm and srm : the current institutional set up of the banking union has been shaped by limitations of what is currently permitted within the boundaries of european primary law. as a result, decision - making procedures within the ssm and the srm are overly complex and can lead to possible conflicts of interest. the ecb ’ s governing council, for instance, is the ultimate decision making body for both, monetary policy and supervisory decisions. a clear separation of the ecb ’ s responsibilities for banking supervision and monetary policy would be desirable. also, rules governing the participation of the european commission and the council in the decision - making procedures of the srm could be streamlined. both changes, however, would require amendments to primary union law. a common deposit guarantee scheme as a third pillar? the european commission has recently presented a proposal for a european deposit insurance scheme ( edis ) as a potential third pillar for the banking union. presently, national deposit guarantee schemes ( dgs ) are being harmonised through the depositor guarantee scheme directive ( dgsd ) which was decided upon in 2014, but which has not fully been implemented by all member states. in the long - run, a common deposit insurance system would, in principle, be consistent with centralized supervision. it could enhance financial stability because risk would be spread more widely and the pool of available resources would be larger. however, integrating deposit insurance systems now would be premature because necessary preconditions are not met ( buch 2015 ). http : / / www. bafin. de / shareddocs / veroeffentlichungen / de / meldung / 2015 / meldung _ 150630 _ afs _ immobilienmarkt. html.