European Banking Authority increases scrutiny of €4 trillion in government bonds

European banking supervisory authorities are increasing scrutiny of government bond portfolios held by banks across the continent. As yields on sovereign debt in major European economies reach multi-year highs, the European Banking Authority (EBA) has emphasized the need for enhanced monitoring of these assets.

At the end of last year, European banks held more than €4 trillion in government bonds, representing approximately 13% of their total assets. Francois-Louis Michaud, President of the EBA, stated that while risks remain limited, regulators are actively monitoring the situation. He noted that increased net interest income from these bonds largely offsets the impact of falling bond prices on banks' equity values.

Currently, the European framework allows banks to hold debt from EU member states without mandatory capital buffers for that specific risk. However, the European Union is considering new measures to enhance banking competitiveness, which may include imposing charges when a bank's exposure is heavily concentrated in specific sovereign issuers to mitigate the impact of national fiscal instability.