As a result, banks often hold an amount of bonds of their home country alone that exceeds the total of their equity. This is why a sovereign debt restructuring currently poses the threat of bringing down the national banking system in question.
And this is why for a decentralised framework to function, the large exposure regime needs to apply to bank lending to sovereigns as well. Simply doing away with the zero-risk weighting will not suffice. Banks’ exposures to their respective sovereigns are often too large.