A top official at the European Central Bank has signalled the central bank will try to force eurozone banks to hold capital against sovereign bonds, in an attempt to stop weak lenders using its cash to hoover up the debts of crisis-hit countries.
In an interview with the Financial Times, Peter Praet, an ECB executive board member, outlined how it could combine its new powers as chief banking regulator with its existing role as currency issuer to toughen up the supervisory requirements on sovereign bonds, which have traditionally been classed as risk-free.
The central bank will try to bring about the change in regulatory thinking using its much-anticipated health check of the eurozone’s 130 biggest lenders alongside any new offer of cheap long-term liquidity.