Spanish banks allowed to ignore default risk for sovereign bonds

Banco de España is one of a number of European supervisors allowing its banks to ignore a Basel 2.5 requirement to model default risk on government bonds

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Spain's central bank, Banco de España, is allowing the country's banks to treat local government bonds as free of default risk, despite the introduction of Basel 2.5 from the start of this year, which requires banks to model this risk for sovereign bond positions in the trading book for the first time.

Basel 2.5 includes the incremental risk charge (IRC), which is designed to capture default and rating migration risk on all trading book assets – essentially requiring banks to model these risks

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