The Basel Committee on Banking Supervision (Basel Committee) has published a discussion paper on the regulatory treatment of sovereign exposures. The Basel Committee has decided to issue a discussion paper rather than a consultation paper at this stage as it has not yet reached a consensus to make any changes to the treatment of sovereign exposures.

The format of the discussion paper is as follows:

• chapter 1 provides some background about the Basel Committee’s review of sovereign exposures. The Basel Committee is of the view that all sovereign exposures entail risks but notes that they also play an important role in the banking system, financial markets and the broader economy. The ideas set out in the discussion paper seeks to balance prudential risk with other holistic considerations that are relevant to the Basel Committee’s mandate of enhancing financial stability;
• chapter 2 reviews the main sources and channels of sovereign risk in the banking system;
• chapter 3 discusses the holistic role of sovereign exposures;
• chapter 4 discusses the existing regulatory treatment of sovereign exposures;
• chapter 5 sets out some ideas regarding the regulatory treatment of sovereign exposures.

The deadline for comments on the discussion paper is 9 March 2018.

View The Regulatory treatment of sovereign exposures – discussion paper, 7 December 2017