Visco wary of changing regulation on sovereign exposures

Bank of Italy governor Ignazio Visco expressed scepticism on May 2, in regard to changing the prudential regulation of sovereign exposures, arguing there may be better ways of addressing sovereign risk.

Sovereign exposures are essentially subject to no concentration limits and a zero risk weight regime, Visco told an audience in Rome. However, the recognition there is "no truly risk-free asset" does not necessarily mean their regulatory treatment should change.

"I doubt that further changes in prudential regulation are the right instrument for addressing the sovereign-bank nexus," said Visco.

He added that sovereign risk should "first and foremost be addressed by strengthening the sustainability of public finances".

While there is "broad agreement" on the pros and cons of different reform options for the regulatory treatment, there is none on the balance between the two. "My personal view is that the potential benefits of a reform are uncertain, while the potential costs could be sizeable," Visco added.