Who's afraid of sovereign bonds?
AbstractThe crisis has underlined the strong interdependence between the euro-area banking and sovereign crises. To understand the role domestic banks have played in holding sovereign debt, a breakdown of government debt by holding sectors is required. The data shows that at the start of the crisis, most continental euro-area countries were characterised by the large size of their banksâ?? portfolios of domestic government bonds, which were markedly larger than in the UK or the US. Consequently, concern about sovereign solvency was bound to have major consequences for banks. The structural vulnerability of euro-area countries has increased, reinforcing the sovereign/ banking crisis vicious cycle. All countries for which concerns about state solvency arose in recent years have seen a reversal in the previously steady increase of the share of government debt held by non residents. Germany, by contrast, has seen an increase in the share held by non residents. In the short term, these observations raise a question about the effectiveness of ECB provision of liquidity to banks as a means to alleviate the sovereign crisis. At a point when government bonds are considered risky assets, euro-area banks are faced with both balance sheet and reputational risks compared to their non-euro area counterparts, and may prove reluctant to increase this exposure further. In the longer term, the question is if and how euro-area regulators should set incentives to reduce banksâ?? heavy exposure to sovereigns. This issue should be given more attention in European policy discussions on how to strengthen the euro area.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bruegel in its series Policy Contributions with number 695.
Date of creation: Feb 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-20 (All new papers)
- NEP-CBA-2012-02-20 (Central Banking)
- NEP-EEC-2012-02-20 (European Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Fernando Broner & Aitor Erce & Alberto Martin & Jaume Ventura, 2013.
"Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out Effects,"
NBER Working Papers
19676, National Bureau of Economic Research, Inc.
- Broner, Fernando & Erce, Aitor & Martin, Alberto & Ventura, Jaume, 2014. "Sovereign debt markets in turbulent times: Creditor discrimination and crowding-out effects," Journal of Monetary Economics, Elsevier, vol. 61(C), pages 114-142.
- Fernando Broner & Aitor Erce & Alberto Martin & Jaume Ventura, 2013. "Sovereign debt markets in turbulent times: Creditor discrimination and crowding-out effects," Economics Working Papers 1372, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2013.
- Fernando Broner & Aitor Erce & Alberto Martín & Jaume Ventura, 2013. "Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out Effects," Working Papers 701, Barcelona Graduate School of Economics.
- Serkan Arslanalp & Takahiro Tsuda, 2012. "Tracking Global Demand for Advanced Economy Sovereign Debt," IMF Working Papers 12/284, International Monetary Fund.
- Fernando Broner & Aitor Erce & Alberto Martin & Jaume Ventura, 2013. "Sovereign Debt Markets in Turbulent Times: Creditor Discrimination and Crowding-Out," IMF Working Papers 13/270, International Monetary Fund.
- Silvia Merler & Jean Pisani-Ferry, 2012.
"Sudden Stops in the Euro Area,"
Review of Economics and Institutions,
Università di Perugia, vol. 3(3).
- Jean Pisani-Ferry, 2012. "The Euro crisis and the new impossible trinity," Policy Contributions 674, Bruegel.
- repec:aqr:wpaper:201209 is not listed on IDEAS
- Peter Claeys & Borek Vasicek, 2012.
"Measuring Sovereign Bond Spillover in Europe and the Impact of Rating News,"
2012/07, Czech National Bank, Research Department.
- Peter Claeys & Borek Vašícek, 2012. "“Measuring Sovereign Bond Spillover in Europe and the Impact of Rating News”," IREA Working Papers 201219, University of Barcelona, Research Institute of Applied Economics, revised Nov 2012.
- Chiara Angeloni & Guntram B. Wolff, 2012. "Are banks affected by their holdings of government debt?," Working Papers 717, Bruegel.
- Zsolt Darvas, 2012. "The euro crisis: ten roots, but fewer solutions," Policy Contributions 755, Bruegel.
- Gianluca Cafiso, 2013. "Public-Debt Financing in the case of External Debt," Working Papers 2013-37, CEPII research center.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruegel).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.