Should regulators be setting a 0% or 2% risk weight? (Premium Content)

The executive director of Sweden’s Financial Supervisory Authority has told banks that they must assign risk weightings to government debt that are realistic and not accept the 0% sovereign risk weight of Basel III’s Standardized Approach. Meanwhile, the Basel Committee has given CCPs a 2% risk weight, which is driving business towards central clearing. Should governments and selected institutions have a regulator-set risk weight or should each firm have their own risk model? Should regulators be setting risk weights at all?

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