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Can a Reliable Framework for Sovereign-Backed Securities Be Established?

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  • Markus Demary

    (Cologne Institute for Economic Research (IW))

  • Jürgen Matthes

    (Cologne Institute for Economic Research (IW))

Abstract

The European Commission has proposed the introduction of sovereign-backed securities (SBSs) as a class of safe assets for the euro area. SBSs are generated by an issuing agency that would purchase a representative portfolio of national sovereign bonds from the euro area. Purchases are financed by issuing (at least) two types of structured bonds: a risk-free senior SBS tranche and a risky junior SBS tranche. Overall, we recognise that the SBS concept has the potential to improve financial stability and financial integration in the euro area. However, we highlight several potentially severe technical and political problems. Most important for the SBS concept to function properly are the de-privileging of national sovereign bonds in bank regulation, rules to ensure conditionality in times of crisis and measures to prevent disincentives for national public finances. If such conditions remain elusive, we advise against the introduction of SBSs.

Suggested Citation

  • Markus Demary & Jürgen Matthes, 2017. "Can a Reliable Framework for Sovereign-Backed Securities Be Established?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 52(5), pages 308-314, September.
    • Handle: RePEc:spr:intere:v:52:y:2017:i:5:d:10.1007_s10272-017-0694-3
    DOI: 10.1007/s10272-017-0694-3
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