Sovereign risk in bank regulation and supervision: Where do we stand? – Hervé Hannoun, Deputy General Manager Bank for International Settlements Financial Stability Institute High-Level Meeting, Abu Dhabi, UAE, October 26, 2011
“My topic today is the treatment of sovereign risk in banking regulation and supervision. This theme has been spotlighted by the sovereign debt strains affecting most advanced economies. My conclusion is that market participants complacent pricing and accumulation of sovereign risk in the decade up to 2009 was a market led phenomenon that cannot be attributed to the Basel standards. However it becomes crucial for regulators and supervisors of large banks to clarify that although sovereign assets are still a relatively low risk asset class, they should no longer be assigned a zero risk weight and must be subject to a regulatory capital charge differentiated according to their respective credit quality.”
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