At present, no large exposure limits are in place for government bonds – nor are banks required to back government bonds with capital. Under the current capital rules, a zero risk weight applies to these assets, which means that these government bonds can be fully funded with borrowed money, which gives them an advantage over lending to the private sector.
In conclusion, the international environment has not yet improved in the way we had hoped, and the changing fortunes of the US dollar throw an additional complication into the mix. To date, the domestic economy has weathered the unfavourable international environment very well. Nonetheless, growth will be further adversely affected in the period ahead if the international situation does not improve.