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Recent developments in the regulatory treatment of sovereign exposures

Michele Lanotte and Pietro Tommasino, (2018), «Recent developments in the regulatory treatment of sovereign exposures», VoxEU, 5 Φεβρουαρίου

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.

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