No. 5 - Large-country bias and the limits on sovereign concentration risk

Notes on Financial Stability and Supervision
by Michele Manna, Federico M. Signoretti, Pietro Tommasino
August 2016
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With a view to loosening the link between sovereigns’ and banks’ creditworthiness, some suggest that large-exposure limits be introduced on banks’ holdings of sovereign debt. However, this proposal has several drawbacks.

In particular, the enforcement of a single threshold for all sovereign bonds, without regard to the size of the country’s economy, might lead to a negative home bias for banks from large countries.

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  1. 05 August 2016
    No. 5 - Large-country bias and the limits on sovereign concentration risk
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