The hidden risks in dormant Basel III bond rule
Thanks to a two-year-old political deal, European banks are protected from losses in their liquidity portfolios – for now. But some in the industry are starting to worry about the risks that will emerge when the filter is removed
A lot of surprises can lurk beneath the placid surface of an economy at rock-bottom rates. One could spring from a currently dormant rule that, for the first time, exposes banks' core capital to changes in the value of their huge liquidity reserves of government bonds.
In some of Europe's periphery countries, sovereign bond holdings have grown significantly in recent years; crisis-scale swings in their value would now expose some local banks to losses of more than €1 billion, wiping out 15% or
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