Chapter 6 demonstrates why the Eurosystem is not an operationally decentralized central bank (like the Fed), but a system of currency boards that is at risk of collapse because individual national central banks (NCBs) can go bankrupt. The ECB and the nineteen NCBs that make up the Eurosystem represent twenty independent profit and loss centers. No individual NCB can decide on the amount of monetary issuance it can engage in. That is a collective decision of the Governing Council of the ECB.

From the perspective of an individual NCB it is as if all its euro-denominated debt is foreign-currency denominated. Own-risk activities undertaken by NCBs have vastly increased in scope and scale. Individual NCBs therefore can become insolvent even if the consolidated Eurosystem is solvent.

Reducing or, preferably, eliminating own-risk activities by NCBs is one obvious solution. Another is reducing the riskiness of the assets that some NCBs and the commercial banks in their jurisdictions are exposed to. This could be done through financial engineering, through sovereign risk sharing or through regulatory measures limiting the exposure of banks to any counterparty, including their own sovereign.