Brussels, 01/04/2015 (Agence Europe) - Daniele Nouy, chair of the Single Supervisory Board at the ECB, feels that European banks' exposure to sovereign risk should not be seen as risk-free.
“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”, said Nouy in an interview with German business newspaper Handelsblatt. “There's a general problem with how sovereign debt is treated on bank balance sheets, 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. 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.
Back in September 2013, the president of the Bundesbank raised the problem of bank exposure to sovereign risk. In early March, the European Systemic Risk Board (ESRB) published a report on the regulatory treatment of sovereign exposures on banks' books, arguing that from a macro-prudential point of view, the current regulatory framework may have led to “excessive” investment in government debt by banks and insurance companies. The report recognises the difficulty of reforming the existing framework without generating potential instability in sovereign debt markets but the ESRB says that the current regulatory framework should be re-examined at global level. (Mathieu Bion)