The close link between sovereign issuers and their respective banking systems represents a specific vulnerability for the financial stability of the euro zone, according to the International Monetary Fund (IMF), which points to Spain as one of the countries where entities would suffer greater losses in case of a sudden change in the valuation of sovereign debt. The Fund draws a "severe" scenario in which the interests of national bonds rise 150 points: this hypothesis would cause «Significant losses» in national entities, according to the IMF's 'Financial Stability Report'. Not only would it splash our country: this hypothesis is repeated in other countries and would also damage the entities of Belgium, Italy and Portugal.
The institution points out that this can be partly explained by the greater interest offered by the bonds of these sovereign issuers, as well as their use by the entities as collateral in their refinancing operations with central banks, as well as the weighting of these bonds as assets of "zero risk"and its treatment as liquid assets.
In this way, taking as a reference the data of the latest stress tests of the European Banking Authority (EBA), the IMF warns that in an adverse scenario the sharp rise in the yield of sovereign bonds "it would generate significant losses"for the banks examined in Italy, Portugal and Spain.
However, the institution emphasizes that the capital reserve cushions created since the euro crisis to strengthen the banks' balance sheets would allow most entities to face the impact of the contemplated adverse scenario in better conditions than in 2010, except in the case of Italian and Portuguese banks, whose capital ratios CET1 would be somewhat lower than at that time.
Regarding the insurance sector in the euro zone, the IMF points out that these entities treasure more than 15% of the sovereign bonds of the euro zone, barely less than banks, plus a quarter of the bonds issued by banks in the euro zone.
In addition, the Fund warns that the average exposure of European insurers to sovereign companies and issuers with a rating 'BBB', the last category above the speculative grade or' junk bond ', has risen from 5% in 2008 to more than 20% in 2017.
"With a higher percentage of lower-rated bonds, insurers are potentially more exposed to the impact of a sharp rise in corporate and sovereign debt yields, as well as corporate bankruptcies," the institution adds, noting that, any rating downgrade, particularly below 'BBBIt could lead to higher capital requirements.
In this way, the IMF warns that this situation makes the eurozone insurers more vulnerable to the financial channels of the nexus between sovereign issuers and the financial sector, which in an adverse scenario could imply "significant losses" for insurance companies, particularly in highly developed countries. indebted.