an important consideration. thank you for your attention. [ 1 ] i would like to thank sandor gardo and benjamin hartung for their contributions to this speech. [ 2 ] the financial stability risks associated with a tightening nexus between sovereigns, banks and corporates in the wake of the covid - 19 pandemic are analysed in the ecb ’ s latest financial stability review ( november 2020 ). a related framework is also briefly discussed in the imf ’ s global financial stability report ( october 2013 ). [ 3 ] there is a rich literature on the impact of the sovereign - bank nexus on financial stability and economic growth, including : acharya, v., drechsler, i. and schnabl, p. ( 2014 ), “ a pyrrhic victory? bank bailouts and sovereign credit risk ”, journal of finance, vol. 69, no. 6, pp. 2689 – 2739 ; altavilla, c., pagano, m. and simonelli, s. ( 2016 ), “ bank exposures and sovereign stress transmission ”, ecb working paper no. 1969 ; becker, b., and ivashina, v. ( 2018 ), “ financial repression in the european sovereign debt crisis ”, review of finance, vol. 22, no. 1, pp. 83 – 115 ; bocola, l. ( 2016 ), “ the pass - through of sovereign risk ”, journal of political economy, vol. 124, no. 4, pp. 879 – 926 ; bolton, p., and jeanne, o. ( 2011 ), “ sovereign default risk and bank fragility in financially integrated economies ”, imf economic review, vol. 59, no. 2, pp. 162 – 94 ; farhi, e. and tirole, j. ( 2014 ), “ deadly embrace : sovereign and financial balance sheets doom loops ”, working paper 164191, harvard university ; gennaioli, n., martin, a. and rossi, s. ( 2014 ), " banks, government bonds, and default : what do the data say? ”, imf working paper 14 / 120, international monetary fund ; popov, a., and van horen, n. ( 2015 ), “ exporting sovereign stress : evidence from syndicated bank lending during the euro area sovereign debt crisis ”, review of finance, vol. 19, no

as defined in the excessive deficit procedure under the maastricht treaty. in addition to rising debt levels, the interlinkages between sovereigns, banks and firms resulting from the broad - based fiscal support have grown. on the one hand, the sensitivity of public finances to future corporate and financial sector developments has increased, beyond the traditional impact of automatic stabilisers during a recession, such as lower tax revenues and higher social security expenses. on the other hand, banks and corporates have become more dependent on government support. only recently, possibly in view of the potential phasing out of fiscal support measures, changes in banks ’ risk perceptions have resulted in tighter credit standards for firms, according to our latest bank lending survey ( chart 5 ). chart 5 https : / / www. ecb. europa. eu / press / key / date / 2021 / html / ecb. sp210128 ~ 8f5dc86601. en. html 5 / 13 29 / 01 / 2021 the sovereign - bank - corporate nexus – virtuous or vicious? bank lending to euro area non - financial corporations and bank credit standards annual percentage changes ; weighted index sources : ecb ( bsi statistics, bank lending survey ) and ecb calculations. the sovereign - bank - corporate nexus – this time is different but the nature of these interdependencies differs fundamentally from previous crises. most notably, this time, the crisis did not originate in the financial sector, as in the global financial crisis [ 6 ], but in the real economy, and public support was granted to firms, not banks. moreover, the pandemic has not raised concerns of moral hazard. while the global financial crisis resulted in the mutualisation of risks that should have been borne by the ultimate risk - takers, government support during the pandemic has protected the economy in the face of an exogenous shock that was not caused by excessive risk - taking. in the pandemic crisis, broad - based fiscal support has been both necessary and proportionate to mitigate the economic and social costs of the containment measures for large parts of society. at the same time, with the banking union still incomplete, the pandemic has once again exposed old vulnerabilities. for example, by absorbing some of the newly issued sovereign debt, banks have increased their exposures to the general government in many euro area countries, reinforcing the links between sovereigns and banks ( chart 6 ).