Draghi-Backed Report Says Sovereign Debt No More a Risk-Free Bet

Government debt can no longer be considered a risk-free asset for banks, and international regulators should consider changing the existing legislation, the European Systemic Risk Board said.

“If sovereign exposures are in fact subject to default risk, consistency with a risk-focused approach to prudential regulation and supervision requires that this default risk is taken into account,” the ESRB said in a report on Tuesday, citing the majority view among its panel of experts. “Current prudential regulation of sovereign exposures is inconsistent with the conceptual approach that underlies the existing system of regulation.”