The Basel Committee has been checking Europe’s homework and it isn’t pleased. It has told the continent its banks need more capital to back sovereign risks, just as Europe is writing to its banks to say they need more capital for other risks.

The group that makes bank capital rules has found a string of problems in the European Union's writing of new Basel III standards into regulations. The biggest issue lies in the risk-free treatment of the near €2.5 trillion ($2.8 trillion) of government bonds and loans that eurozone banks own. This means they hold zero capital against them.