Europe: Banks’ sovereign addiction

Author: | Published: 23 Feb 2015
Some banks’ internal risk calculations are equally unreliable
Europe's policymakers have been focussed on breaking the link between banks and sovereigns since the eurozone crisis in 2012, when Greece defaulted on its debt.

However, under EU rules, banks remain free to automatically rate all debt issued by the bloc's 28 member states as risk free, allowing them to avoid capital charges and understate the riskiness of their assets. This broad loophole applies irrespective of whether those...