Graph 3  BIS central bankers’ speeches  3  The effect on European banks The problems in European sovereign debt markets have affected European banks through two main channels:   first, these banks have experienced valuation losses on their sovereign debt holdings; and    second, these losses have raised concerns about the financial soundness of banks, particularly in an environment where some governments are seen as having less capacity to support banks financially.
This has caused investors and other banks to become reluctant to lend to them, and has pushed up banks’ funding costs. Let me say something about each of these points in turn. Euro-area banks, in total, hold about € trillion of euro-area sovereign debt. This is about one-third of all the euro-area sovereign debt on issue.