EU finmins split over limits to banks' sovereign debt holdings
Reuters
Published Apr 22, 2016 01:31PM ET
EU finmins split over limits to banks' sovereign debt holdings
By Francesco Guarascio
AMSTERDAM (Reuters) - European Union finance ministers battled on Friday over the possibility of imposing limits on banks' holdings of sovereign debt, with several member states opposing German proposals to cap such exposure.
EU sovereign bonds are currently treated as risk-free and are exempt from exposure limits imposed on banks' holdings of corporate or household debt.
This privileged treatment has been seen as risky, especially when banks own too much debt issued by their own sovereign, but EU countries have been cautious about backing change for fear of upsetting bond markets and banks' financial stability.
But the EU's current Dutch presidency has decided to raise the issue for discussion at a gathering of the bloc's finance ministers after months of technical talks.
"We had an open discussion on the regulatory treatment of banks' sovereign exposures. There were different ideas on how to approach it," Dutch Finance Minister Jeroen Dijsselbloem told a news conference after the meeting in Amsterdam.
Work will continue at the technical level and ministers may discuss the issue again in June, he said.
In a paper discussed by the ministers, the Dutch listed five options, including caps and higher costs to hold sovereign debt.
The EU commissioner for financial affairs, Jonathan Hill, urged caution, citing the importance of financial stability.
Any progress should be agreed at the global level, not only among EU ministers, the Briton said. The Basel Committee, a body of banking supervisors from nearly 30 countries, has been discussing the issue for months.
GERMAN CONCERNS
Dijsselbloem said the topic needed to be discussed as part of talks to conclude the EU flagship project for a banking union, which is still missing a common guarantee for banks' deposits and a backstop for the newly-established euro zone bank rescue fund.
Germany is blocking progress on the banking union until European banks are made safer, so that German taxpayers will be less exposed to riskier lenders in other euro zone countries. Limiting exposure to sovereigns is seen by Berlin as a means to strengthen banks' balance sheets.
"We have to start to reduce the risks that occur from the connection between banks and public budgets, and that of course means that we have to address government bonds and balance sheets of banks," German Finance Minister Wolfgang Schaeuble told reporters, praising the Dutch proposals.
Berlin backs a so-called hybrid option which may entail "price-based large exposure thresholds", German and EU officials said.
Among the countries most opposed to this discussion is Italy, whose banks have large exposures to the national debt, and may see the price of their holdings slashed if limits on exposure were to be imposed.
Get The News You Want
"Debates are always very interesting," Italy's Finance Minister Pier Carlo Padoan said, cutting short reporters' questions about banks' sovereign exposure talks.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.