Banks treat most sovereign exposures as risk-free

Basel report highlights overuse of standardised approach

photo of the basel committee headquarters
Basel Committee headquarters

Banks apply a zero risk-weight to more than half of their holdings of sovereign debt, according to the Basel Committee on Banking Supervision's annual report.

The Basel Committee's bank capital rules require banks to hold capital against sovereign bonds in the banking book that have been risk-weighted using using either the standardised or internal ratings-based (IRB) approaches, while the treatment of those held in the trading book varies. 

The banking book holdings are where the issue lies.

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