PARIS, March 13 Sovereign bonds should in the
future be weighted on banks' balance sheets according to the
risks they represent, European Central Bank Executive Board
member Benoit Coeure said on Thursday.
Banks are currently required under international regulations
to hold government bonds as a counterweight to risks that they
are exposed to.
However, the euro zone's sovereign debt crisis has raised
questions about government bonds status as risk-free assets
providing a solid cornerstone for banks' balance sheet.
"I would absolutely agree that in the long-term, in the
steady state, it makes sense to put risk weights on all assets.
That's a matter of sound incentives for risk management," Coeure
told a banking conference in Paris.
"In the long-term there should be risk weights on sovereigns
but then you have to think through the consequences. If you move
in that direction, you may have to rethink the definition of
high quality assets," he added.
Coeure said that the restructuring of some countries debt
meant that sovereign debt had lost its risk-free status,
creating a world where only central bank money could be
considered entirely safe.
The ECB is in the midst of a vast, in-depth review of banks
assets to determine how healthy they are and whether they need
fresh capital to strengthen their balance sheets.
Shedding light on banks assets could trigger a revival in
merger and acquisition activity in the industry, which could in
turn lead to better efficiency, Coeure said.
"We would like more cross-border direct lending," he said,
adding that it was not up to bank supervisors to orchestrate
tie-ups in the industry.
(Reporting by Leigh Thomas; Editing by Toby Chopra)