Doomed loop: Europe gets creative on sovereign bond risks
Political and prudential risks in huge bond-holdings force experts to consider new ideas
It came to be known as the ‘doom loop' – the mutually destructive relationship in which government bond-laden European banks weighed on the creditworthiness of their states, threatening the survival of both. But while the phenomenon has had a neat label for at least five years, it still lacks a neat solution.
That is not because there isn't one, but because any fix means tackling the status quo, whereby banks can hold domestic government bonds without a capital cost – a stance that makes little
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