how to treat sovereign exposures in bank regulation. Our contribution is to model endogenous sovereign portfolio … reallocation by banks in response to regulatory reform. Simulations highlight a tension between concentration and credit risk in … opportunity set to include an area-wide low-risk asset. By reinvesting into such an asset, banks would reduce both their …

Euro area governments have committed to break the doom loop between bank risk and sovereign risk. But policymakers have …. Simulations highlight a tension in regulatory design between concentration and credit risk. An area-wide low-risk asset - created … risk. …