Lautenschläger, Schäuble question risk-free treatment of sovereign debt

28 February 2014

ECB Executive Board member Sabine Lautenschläger and German Finance Minister Wolfgang Schäuble have both expressed concerns about the risk-free treatment of government bonds.

Lautenschläger called for a limit on how much government debt banks can hold, a position she already took in her previous job as vice president at Germany's Bundesbank. "I am still convinced that banks should conduct their business in a risk-aware manner. That's why I am convinced that banks' government bonds should also be treated in a non-risk-free manner", she said in a panel discussion. "There should also be limits on holdings of debt from a single source to prevent concentration."

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Meanwhile, German Finance Minister Wolfgang Schäuble said on Friday he favoured moving away over the medium term from treating sovereign bonds as risk-free as part of the supervision of Europe's banking sector. He told a Bundesbank conference in Frankfurt that he would be in favour of the European Central Bank taking some "first steps" in this direction in its forthcoming stress tests of Europe's banking sector. "You can look at whether you have too much of this (sovereign bonds)", he said. "This is not the risk-weighting. I think we should have in mind that we would have to move in this direction over a medium-term period."

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