February 28, 2014 / 10:37 AM / 4 years ago

ECB's Lautenschlaeger: need to end of risk-free treatment of govt bonds

FRANKFURT, Feb 28 (Reuters) - European Central Bank Executive Board member Sabine Lautenschlaeger called on Friday for an adequate risk reflection of government debt in banks’ portfolios.

So far, euro zone banks do not have to hold extra capital against their holdings of government debt, which has let many banks to invest heavily, tying their well-being closely to that of the corresponding government.

Lautenschlaeger called for a limit on how much government debt banks can hold, a position she already took in her previous job as vice president at Germany’s Bundesbank.

“I am still convinced that banks should conduct their business in a risk-aware manner. That’s why I am convinced that banks’ government bonds should also be treated in a non-risk-free manner,” Lautenschlaeger said in a panel discussion.

“There should also be limits on holdings of debt from a single source to prevent concentration.”

Reporting by Eva Taylor and Sakari Suoninen

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