Artikel

Risk weighting for government bonds: Challenge for Italian banks

Although banks are required to document their equity capital for loans, corporate bonds, and other receivables, they are currently exempted from the procedure when investing in government bonds: they enjoy an 'equity capital privilege.' As part of the Basel III regulatory framework redraft, the privilege may be eliminated in order to disentangle the default risks between sovereigns and banks. The present study examines how much additional equity capital the banks of the euro area's major nations would require if the equity capital privilege were eliminated. At nine billion euros, the estimates show the highest capital requirement for Italian banks. In comparison, French banks would only require additional capital of three billion euros and German banks would need just under two billion euros. Since eliminating the equity capital privilege would make the Italian state's consolidation efforts more difficult, it is advisable to risk weight newly purchased government bonds only or allow for long transition phases.

Language
Englisch

Bibliographic citation
Journal: DIW Economic Bulletin ; ISSN: 2192-7219 ; Volume: 7 ; Year: 2017 ; Issue: 28/29 ; Pages: 283-290 ; Berlin: Deutsches Institut für Wirtschaftsforschung (DIW)

Classification
Wirtschaft
Financial Institutions and Services: General
Financial Institutions and Services: Government Policy and Regulation
Financial Crises
Subject
Basel III
bank capital requirements
government bonds
banksovereign nexus

Event
Geistige Schöpfung
(who)
Meyland, Dominik
Schäfer, Dorothea
Event
Veröffentlichung
(who)
Deutsches Institut für Wirtschaftsforschung (DIW)
(where)
Berlin
(when)
2017

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Artikel

Associated

  • Meyland, Dominik
  • Schäfer, Dorothea
  • Deutsches Institut für Wirtschaftsforschung (DIW)

Time of origin

  • 2017

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