MILAN, Feb 12 (Reuters) - The Italian banking system would collapse if authorities decided to limit the banks' holdings of sovereign bonds, the chief executive of Banco Popolare said on Friday.
The chief supervisor of the European Central Bank said in November that she favoured a 25 percent cap on large exposures to sovereign bonds for all banks in the region to ensure that lenders are not too exposed to the risk associated with government bonds in their respective countries.
Among the largest euro zone countries, Italy and Spain would be likely to be most affected by such a measure, given the high level of sovereign debt held by banks in the two countries.
"Limiting sovereign bonds to 25 percent of the banks' tangible equity would cause the collapse of the banking system, but even a ceiling of 100 percent would have the same effect," Banco Popolare CEO Pier Francesco Saviotti said at a conference in Milan.
Banco Popolare, which has tangible equity of 6.5 billion euros ($7.30 billion), currently holds 18 billion euros in government bonds, Saviotti said.
"I hope politicians will strongly oppose (such a ceiling)." ($1 = 0.8906 euros) (Reporting by Gianluca Semeraro; Writing by Francesca Landini; Editing by David Goodman)