2012.05.28 14:20:10 ECB's Knot: Sovereign Debt Treatment Under Basel III Not Ideal

LISBON (Dow Jones)--The way banks account for their sovereign-debt exposure under Basel III capital requirements "isn't ideal" because that debt is no longer risk free, European Central Bank governing council member Klaas Knot said Monday. Knot, who is also governor of the Dutch Central Bank, didn't elaborate, but said he sees problems over banks holding high-yielding debt without protecting themselves against a possible fall in that investment. Sovereign debt was considered a safe investment before the euro-zone crisis. The banker, who was in a conference in Lisbon on Basel III and systemically important banks declined to talk about woes facing Greece and Spain, but said "in general the euro zone is in better shape." He said Portugal, for instance, seems to be on the right path for recovery. Knot also said he opposes the idea of splitting the investment banking and retail operations of banks. The subject is highly charged in financial centers where big banks have both operations with fears that those banks could use money from retail customers for investment activities that then turn sour. -By Patricia Kowsmann, Dow Jones Newswires. Tel +351-916-466-297, patricia.kowsmann@dowjones.com (END) Dow Jones Newswires May 28, 2012 08:20 ET (12:20 GMT)