The EU will discuss limiting the exposure of banks to sovereign debt

Finance ministers of the European Union will discuss next week put limits on exposure that banks have to sovereign debt, according to an EU document.

The EU countries have debated for months whether they review the status enjoyed by public debt used to finance the states, but during the financial crisis of the eurozone joined a "vicious circle" of dependence between states and banks. Sovereign bonds are considered risk-free and are exempt from the limits that banks have over other types of corporate or personal debt. EU countries have been cautious about their treatment for fear of affecting markets and financial stability of the institutions.

Under pressure from Germany, the Dutch Presidency of the EU has decided to put the issue first on the agenda of a meeting of finance ministers of the EU. "A domestic sovereign debt structurally high (...) amplify the risk that when a sovereign default happens a systemic banking crisis," said the Dutch EU Presidency in a document prepared for talks in Amsterdam scheduled for 22 and 23 April.

One option to be discussed next week is a limit of maximum exposure to a single sovereign issuer, the document said, and another option is a change in the status free from risks of sovereign bonds entering "a calibration of the risk weight based in credit risk "or" minimum risk weighting that is independent of the credit risk of a sovereign issuer ". Another possibility is to impose limits banks to take higher costs or sovereign debt, the statement said.


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