EU bank­ing watch­dog mulls new cap on sovereign debt ex­po­sure

The China Post - - WORLD BUSINESS -

Europe’s new bank­ing su­per­vi­sory chief, Daniele Nouy, sug­gested Wed­nes­day that banks should limit their ex­po­sure to sovereign debt which she said can no longer be re­garded as risk-free.

“There’s a gen­eral prob­lem with how sovereign debt is treated on bank bal­ance sheets,” Nouy said in an in­ter­view pub­lished by the busi­ness daily Han­dels­blatt.

“They’re cur­rently treated as risk-free. But we’ve learned dur­ing this cri­sis that sovereign bonds aren’t free of risk. Banks should there­fore have to back sovereign bonds with cap­i­tal, as they are re­quired to do with other as­sets,” she said.

Un­der cur­rent rules, banks must limit their ex­po­sure to pri­vate debtors to no more than a quar­ter of their cap­i­tal. And that rule should also ap­ply to sovereign debt, Nouy ar­gued.

“Since the eu­ro­zone com­prises 19 mem­ber states, banks have suf­fi­cient op­por­tu­nity to di­ver­sify their sovereign debt port­fo­lios,” she added.

“What is im­por­tant is the ac­knowl­edge­ment that sovereign debt isn’t risk-free. If the rules were to make that clear, that would send a strong sig­nal,” Nouy con­tin­ued.

The Basel com­mit­tee on bank­ing su­per­vi­sion had al­ready ini­ti­ated talks on how

Newspapers in English

Newspapers from Taiwan

© PressReader. All rights reserved.