Current regulatory requirements
What they need banks to invest in government securities? The question can have many answers, but the traditional textbook explanation is that this is a result of the need to maintain secondary liquidity buffers with which to meet unexpected cash outflows. Loans to businesses and households traditionally occupy the highest and lucrative share of assets of banks, but they can not spoil unilaterally respectively withdrawals of deposits can hardly be converted into cash. ECB monetary policy since 2008 have increasingly lower base interest rates as a result of which started at the beginning of this year the ECB's program to buy assets currently yields of government bonds in Europe are historically low and at times negative. This completely changed the traditional rules. Currently the yield on these securities does not compensate for the risk in terms of a possible rise in interest rates amid unsustainable fiscal fundamentals in countries such as Italy, Spain and Portugal. And although these countries along with Greece have demonstrated that there is no such thing as risk-free asset, in terms of banks and regulators they continue to be treated as such.
In the government securities under duress
It is a fact that sustainable growth of deposits registered here since 2009, surpassed significantly the pace of credit growth. Gradually, after being paid old debts to plants, banks build up a buffer of high borrowings that had to be invested. In terms of the absence of credit growth and the weight of problem debts banks switched to "risk-free" government bonds issued by the Republic of Bulgaria. With few exceptions Bulgarian banks traditionally do not invest significantly in the market of foreign government bonds and the diversification of their portfolios is extremely low.
Since the beginning of 2010 the banks NEWLY sustainable direct deposit funds to invest in government securities. The share of exposure to the government sector in the assets of banks to peak at the end of May this year increased from 4.8% to 11.4% (2.3 to 8.4 billion.). In comparison, banks in the euro area this indicator for the same period increased from 4.8% to 6% of assets. Only in countries with deteriorating public finances such as Italy, Spain and Portugal indicators at the end of September as high: 11.5% (5.7%), 10.1% (4.8%) and 9% (3.5%). The high share may be due to the lack of alternatives (low credit demand and lack of investment projects) and of "financial repression" by the State (other devices with which it persuaded the banks to buy its debt). Here, banks remain as the main buyer of government debt and increase exposure and increased risk of future losses under different adverse scenarios. Without claim to completeness such may be worsening macroeconomic situation, rising budget deficits, rising interest rates, rising sovereign risk premiums.