EU financial chief says won't go it alone on sovereign bond capital

BERLIN/LONDON, April 28 (Reuters) - The European Union will not unilaterally force banks to set aside capital to cover sovereign bonds until there is a global deal, the EU's financial services commissioner told a German newspaper on Tuesday.

Jonathan Hill, who has powers to propose changes in the EU's rules on bank capital requirements, said that a global solution was needed.

"The capital requirements for government bonds are now being discussed in many places - in the Basel Committee as well as in the committee for systemic risks at the ECB (European Central Bank)," Hill told the business daily Handelsblatt.

"I understand the arguments of those who advocate that but I believe that we can only solve this problem at a global level. The EU cannot afford to go it alone on this issue."

The Basel Committee of banking supervisors, a global body on which the EU has representatives, is reviewing a rule that allows banks to hold little or no capital against risky sovereign bonds kept on their books.

The so-called zero-risk weighting rule was heavily criticised during the euro zone debt crisis when several countries in the single currency area had to be bailed out.

Even (Taiwan OTC: 6436.TWO - news) though the ratings on these countries' debt sank to junk status in some cases, banks were allowed to continue holding little or no capital against it even though the volumes were and still remain large at some lenders.

The bruising experience of the euro zone crisis prompted policymakers to say there is no such thing as zero-risk debt and to call for speedy changes in the rule.

But Basel's task force is not expected to come up with any proposals this year and even then it would hold a public consultation and impact assessment, with any actual change to the rule several years away.

Daniele Nouy, head supervisor at the European Central Bank, which oversees the euro zone's top 120 lenders, said introducing capital requirements would help break the link between countries's stressed debt and banks.

"We need to have risk-weighted assets for sovereign exposures. We learned that during the crisis. They are not risk-free assets," Nouy told an event in Brussels on Monday.

"Maybe we have to move gradually because certain concentrations are now so high. There is a need for phasing out but that's the direction, and the sooner we start the better."

(Reporting by Michelle Martin in Berlin and Huw Jones in London; Editing by Mark Heinrich)