The debate on banks’ sovereign exposures can be pursued using two different approaches: the rise of capital ratios in terms of credit risk, the reduction of concentration risk through a disincentive mechanism. To be effective and sustainable, the new framework must retain two assumptions: the systemic nature of sovereign risk could make any capital requirement insufficient to cover bond portfolios losses; the new limits should not jeopardize banks’ role in financing public debt and in ensuring credit to the economy.
