The European Central Bank (ECB) is to push Eurozone banks to hold capital reserves against their sovereign bond holdings, as it seeks to prevent weak lenders from buying up the debts of countries left vulnerable by the euro crisis.
Sovereign bonds are often thought of as risk free, however, the new drive would force banks to hold capital reserves as a proportion of their sovereign bond holdings.
The shift would be introduced as part of the ECB’s “health check” of the Eurozone’s largest 130 banks, writes the Financial Times, adding –
The vicious cycle that has seen banks use central bank cash to buy government bonds has been partly blamed for prolonging the Eurozone financial crisis.
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