Michele Lanotte, Pietro Tommasino, 05 February 2018

Late last year, the Basel Committee decided to maintain the status quo regarding regulation of banks’ sovereign debt holdings. This column summarises the reasons to be cautious of stricter regulation of banks’ sovereign exposures. Theory and experience suggest small net benefits from such a reform, with possible increases in tail risks. The best instrument to tackle the problem is not microprudential regulation, but sounder public finances and the completion of the banking union.

Jochen Andritzky, Niklas Gadatsch, Tobias Körner, Alexander Schäfer, Isabel Schnabel, 04 March 2016

The excessive exposure of banks to sovereign debt continues to threaten the stability of the Eurozone. Based on a recent proposal by the German Council of Economic Experts, this column suggests steps towards severing the sovereign-bank nexus. The loss-absorption capacity of banks could be increased through risk-adjusted large exposure limits and risk-adequate capital requirements.

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