In addition, the increase in food prices as a result of BSE and the outbreak of foot-and-mouth disease in some of the Member States have had an impact on developments in the HICP.
If banks were required to hold capital against the risks of their government bond portfolios, this would make them more resilient to fiscal distress. At the same time, banks would have an incentive not to buy such large volumes of government bonds. And this brings us to the second issue: capital alone is insufficient. A crucial tool of risk management is diversification.