Sarb paper questions assumption that government debt is low risk

Photo: Elske Photography

Macro- and micro-prudential regulators need to review the role of government debt as a low-risk asset, according to research from the South African Reserve Bank.

In the paper, Fiscal risks and their impact on banks’ capital buffers in South Africa, Sarb economists Konstantin Makrelov, Neryvia Pillay and Bojosi Morule test how sovereign risk premia affect capital buffers. They find there is a positive relationship between the two.

“This suggests that banks are accumulating capital to mitigate

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