August 22, 2014

The weaker their banks the lower the interest rates of their sovereigns; the sick result of risk-weighted capital requirements.

Sir, Claire Jones and Ralph Atkins report “EU borrowing costs hit new lows amid call for ECB intervention” August 22.

And they write for instance that “Portuguese yields fell to a near decade low – despite fears about weaknesses in its banking system”. Is it so hard to understand that precisely because of perceived weaknesses in the banking system sovereign yields must fall… because sovereign debt is precisely what weakened banks with no capital can hold without being required to have bank capital?

That is one of the very sick results of the very sick risk-weighted capital requirements for banks.

PS. FT reporters... dare to ask The Question!