Easier said than done? Reforming the prudential treatment of banks� sovereign exposures

Michele Lanotte (), Giacomo Manzelli (), Anna Maria Rinaldi (), Marco Taboga () and Pietro Tommasino
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Michele Lanotte: Bank of Italy
Giacomo Manzelli: Bank of Italy
Anna Maria Rinaldi: Bank of Italy
Marco Taboga: Bank of Italy

No 326, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In the aftermath of the euro-area sovereign debt crisis, several commentators have questioned the favourable treatment of banks� sovereign exposures allowed by the current prudential rules. In this paper, we assess the overall desirability of reforming these rules. We conclude that the microeconomic and macroeconomic costs of a reform could be sizeable, while the benefits are uncertain. Furthermore, we highlight considerable implementation issues. Specifically, it is widely agreed that credit ratings of sovereigns issued by rating agencies present important drawbacks, but sound alternatives still need to be found; we argue that consideration could be given to the use of quantitative indicators of fiscal sustainability, similar to those provided by international bodies such as the IMF or the European Commission.

Keywords: sovereign risk; prudential regulation; sustainability of public finances (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 H63 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-cba, nep-eec, nep-pr~ and nep-mac
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_326_16

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