Banking Union with a Sovereign Virus: The self-serving regulatory treatment of sovereign debt in the euro area
AbstractIn many eurozone countries, domestic banks often hold more than 20% of domestic public debt, which is an unsatisfactory situation given that banks are highly leveraged and that sovereign debt is inherently subject to default risk within the euro area. This paper by Daniel Gros finds, however, that the relative concentration of public debt on bank balance sheets is not just a result of the euro crisis, for there are strong additional incentives for banks in some countries to increase their sovereign. His contribution discusses a number of these regulatory incentives – the most important of which is specific to the euro area – and explores ways in which euro area banks can be weaned from massive investments in government bonds.
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Bibliographic InfoPaper provided by Centre for European Policy Studies in its series CEPS Papers with number 7904.
Length: 8 pages
Date of creation: Mar 2013
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-16 (All new papers)
- NEP-BAN-2013-06-16 (Banking)
- NEP-CBA-2013-06-16 (Central Banking)
- NEP-EEC-2013-06-16 (European Economics)
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- Paolo Angelini & Giuseppe Grande & Fabio Panetta, 2014. "The negative feedback loop between banks and sovereigns," Questioni di Economia e Finanza (Occasional Papers) 213, Bank of Italy, Economic Research and International Relations Area.
- Fritz Breuss, 2013. "European Banking Union," WIFO Working Papers 454, WIFO.
- Gianluca Cafiso, 2013. "Public-Debt Financing in the case of External Debt," Working Papers 2013-37, CEPII research center.
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