Sovereign risk weights under threat

Bank capital rules continue to regard government bonds as risk-free under many conditions. If politicians can’t convince them otherwise, regulators may have to change the rules – but could they do it without causing bond market mayhem? Duncan Wood reports

Manoj Bhaskar
Manoj Bhaskar

Prior to the financial crisis, the yield spread between Greek and German 10-year government bonds hovered between 20 basis points and 30bp. As Risk went to press, it was around 900bp. This is a different world – one in which the assumed homogeneity of eurozone sovereign risk has splintered, with markets becoming acutely aware of national debt burdens and growth rates, budgets and politics. It is a world in which the Kingdom of Spain is the most actively traded credit default swap contract, a

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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