EU sovereign debt rules risk damaging yields

Author: Lizzie Meager | Published: 14 Jun 2016

Proposed rules for sovereign debt risk weightings will cost eurozone banks up to €135 billion ($152.6 billion) extra in regulatory capital, or see them dispose of high levels of government assets, according to a new report.

Banks will be required to either raise extra capital to maintain solvency levels or reallocate €492 billion of sovereign holdings - which could be just as damaging - to comply with the proposed new regulation, claims the June 8 report from Fitch Ratings.

"I think it’s more likely that banks will dispose of the assets than hold extra capital," said John Ahern, partner at Jones Day. "The cost of capital, as we all know, is incredibly high right now. But mass unloading could be damaging to yields, too."...