Sovereign bond-backed securities as European reference safe assets: a review of the proposal by the ESRB-HLTF

Abstract

A High-Level Task Force (HLTF ) of the European Systemic Risk Board (ESRB) has recently put forward a proposal aimed to increase the supply of low-risk financial assets in Europe through the securitisation of national euro area sovereign debt. This article reviews the proposal from different angles, including regulatory and financial stability considerations, as well as current market practices relevant to safe assets. We conclude that the proposal has some positive elements that would help to foster financial integration in the euro area, although it would also pose challenges related to financial stability in times of stress. All the pros and cons of the proposal should be properly accounted for if further steps are taken to develop this proposal.