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?
