Global banking watchdogs are gearing up to review a
controversial rule that allows banks to
hold little or no capital against their government debt
Current EU rules state that banks, under so-called
risk-weighting, can rate all debt issued by the
bloc’s 28 member states as risk-free. This means
they don’t have to put aside capital against debt
held in their own currency.
The Basel Committee for Banking Supervision’s
so-called zero-risk weighting rule came under fire during the
eurozone debt crisis, when several countries had to be bailed
out and the differing risk profiles of different
countries’ debt became apparent.
But despite the regulatory will to close the loophole, the
plan could take years to come to fruition, and will have to
overcome significant political hurdles to do so.
Bank regulators have been trying to change this rule since
2006, said Simon Gleeson, a London-based partner with...