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German Finance Minister backs move away from risk-free treatment of government bonds

FRANKFURT (Reuters) - German Finance Minister Wolfgang Schaeuble said on Friday he favoured moving away over the medium term from treating sovereign bonds as risk-free as part of the supervision of Europe's banking sector.

Schaeuble told a Bundesbank conference in Frankfurt that he would be in favour of the European Central Bank taking some "first steps" in this direction in its forthcoming stress tests of Europe's banking sector.

"You can look at whether you have too much of this (sovereign bonds)," he said. "This is not the risk-weighting. I think we should have in mind that we would have to move in this direction over a medium-term period."

Under existing European regulations, sovereign debt is which treated as virtually risk-free.

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The ECB is preparing to conduct, with the European Banking Authority, stress tests on banks before taking over responsibility for supervising the euro zone's lenders from November.

(Reporting by Jonathan Gould; Writing by Paul Carrel; Editing by Larry King)