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Weidmann Says Ending Sovereign-Debt Privilege Would Spur Lending

European Central Bank Governing Council member Jens Weidmann said ending the preferential treatment given to sovereign bonds on bank balance sheets would help increase lending to the private sector.

“Ending the preference given to sovereign debt with respect to corporate loans would be an important step in making credit to companies more attractive,” Weidmann, who leads Germany’s Bundesbank, said in a speech in Hamburg today. “The sovereign risks on bank balance sheets, which have in places increased during the crisis, are partly due to the fact that government bonds don’t have to be backed by capital and that there are no upper limits for sovereign debt held.”