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Draghi: Sovereign debt risk weightings a global task

Thursday, 12 Dec 2013 | 6:43 AM ET
Sean Gallup | Getty Images

The European Central Bank will not unilaterally assign risk weightings to the various euro zone governments bonds on banks' balance sheets, ECB President Mario Draghi said on Thursday.

That issue should be agreed on globally, he told a question-and-answer session at the European Parliament, indicating this would not happen in the short term.

"This not the task for us or for now. This is the global task that will be discussed by the Basel Committee (on banking supervision) at the proper time," the Italian said.

(Read more: ECB poised to get tough on sovereign bond risks)

Under an exception to global banking rules, EU regulators are allowed to assign a risk-free status to banks' holdings of domestic government bonds.

ECB Executive Board member Yves Mersch earlier said government debt would be treated on a zero-risk-weight basis in the banks' balance-sheet assessment, due to start early next year.

That review is part of a comprehensive assessment of the health of the financial sectorthat the ECB is undertaking before it takes over supervising the bloc's lenders late in 2014.

The second part of the process comprises stress tests.

(Read more: ECB's Draghi: New bank stress tests 'just the beginning')

The ECB's treatment of sovereign debt in those tests was "a totally different issue," Draghi added.

"That has nothing to do with different risk weights. Sovereign debt is going to be (treated) ...like all other categories in the banks' balance sheet," he said.

Draghi also lamented the fact that bank lending, especially to small firms, was at a very low ebb.

ECB policymakers have floated the possibility of trying to revive credit activity with another run of the cheap long-term loans (LTROs) it fed into the banking system in late 2011 and early 2012.

(Read more: ECB rate decision: No more bazookas)

That resulted in banks taking more than 1 trillion euros of three-year money and spending much of it on government bonds instead of lending to the real economy.

The ECB could offer lenders more such liquidity if the bank tests crimped their lending, Executive Board member Peter Praet was quoted as telling the Financial Times on Thursday.

Draghi said any repeat would need to closely monitored.

"This LTRO would have to geared and designed in a way to increase the probability that this money will reach the real economy," Draghi said, adding this might take some time.

"We (have) got to think further and reflect more deeply to find the right instrument," he said.

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