European Banks Are Set for Relief on Sovereign Bond Holdings

- Advertisement -
- Advertisement -
- Advertisement -
- Advertisement -

European banks are close to receiving capital relief on their holdings of sovereign debt as lawmakers bolster a package of measures intended to protect the industry from aftershocks of the coronavirus pandemic.

The European Union’s 27 member states agreed this week to sign off on legislation that would offset the “considerable negative impact” on capital requirements from any losses on government bonds, according to a document seen by Bloomberg News that summarizes the deal.

The measure is a late addition to a package lawmakers are preparing to soften the burdens of regulation on banks. Lenders will get a big break on leverage restrictions, additional flexibility to deal with non-performing loans, and savings on capital when they invest in software and lend to small business. That’s on top of several rounds of relief the European Central Bank has already granted since mid-March.

High volatility in sovereign bond markets is threatening to crimp banks’ lending capacity, according to the document, as governments around the world count on lenders to keep credit flowing through the economy. A so-called prudential filter would temporarily free banks from taking a hit to their capital ratios should their portfolios of government debt shrink in value.

A panel of lawmakers in the European Parliament in Brussels also supported the legislation this week, putting it on course for final agreement within days. Spain and Italy were among the main backers of the policy as debate proceeded in recent weeks, according to a separate document.

Prices of bonds issued by countries including Spain and Italy fell significantly in the wake of the virus outbreak. A 1.35 trillion-euro ($1.53 trillion) asset-purchase program by the ECB and an EU plan for a joint fiscal response restored some calm to the markets in recent weeks.

The ECB has also moved to support financial firms through regulatory relief since the crisis outbreak, including giving investment banks’ trading desks a break on capital rules for market risks. It has allowed banks to dip into capital buffers built up in better times in order to cope with increased demand for credit and to swallow losses on loans borrowers can’t pay back because of the pandemic.

Banks have lobbied for years to roll back 2008 crisis-era regulations designed to make them safer, and many of those wishes are being granted in the crisis, though the ECB has said the relief will be temporary. Europe’s banking regulators plan to wait until the end of the third quarter before deciding whether to grant more relief or start a gradual return to stricter demands, people familiar with the matter have said.

The latest measures by lawmakers may especially benefit Italian banks which have large holdings of the country’s bonds. Intesa Sanpaolo has about 100 billion euros of sovereign debt, including insurance and banking assets, making it the second-biggest creditor of the state after the ECB, CEO Carlo Messina said earlier this month.

This article was originally posted on

Home of Science
Follow me

- Advertisement -




Jo Whiley: It’s been the worst week of our lives as Frances struggles with Covidon February 21, 2021 at 2:00 pm

The DJ says her sister Frances, who has a learning disability and diabetes, is "fighting for her life" with Covid.The DJ says her sister...

Women boardroom roles make ‘dramatic’ jump in five yearson February 24, 2021 at 7:03 am

Boards of big companies have 50% more women present than in 2015, a government review has found.image copyrightGetty ImagesWomen now make up more than...

Covid: Professor Jonathan Van-Tam answers your questionson July 29, 2021 at 5:47 pm

The deputy chief medical officer answers a range of questions about Covid from young audience members.

Africa’s year in pictures 2021: Giggles and coronationson December 31, 2021 at 12:58 am

A selection of the best photos from across the African continent this year.

Peng Shuai: Chinese tennis star tells Olympic officials she is safeon November 21, 2021 at 5:54 pm

Peng Shuai disappeared from the public eye after making sex assault allegations against a Chinese minister.Image source, IOC / Greg MartinChinese tennis star Peng...
Home of Science
Follow me