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Banks and sovereign risk: A granular view

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Author Info

  • Buch, Claudia M.
  • Koetter, Michael
  • Ohls, Jana

Abstract

In this paper, we use detailed data on the sovereign debt holdings of all German banks to analyse the determinants of sovereign debt exposures and the implications of sovereign exposures for bank risk. Our main findings are as follows. First, sovereign bond holdings are heterogeneous across banks. Larger, weakly capitalised banks and banks with a small depositor base hold more sovereign bonds. Around 31% of all German banks hold no sovereign bonds at all. Second, the sensitivity of banks to macroeconomic factors increased significantly in the post-Lehman period. Banks hold more bonds from euro area countries, from low-inflation countries, and from countries with high sovereign bond yields. Third, there has been no marked impact of sovereign bond holdings on bank risk. This result could indicate the widespread absence of marking-to-market for sovereign bond holdings at the onset of the sovereign debt crisis in Europe. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 29/2013.

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Date of creation: 2013
Date of revision:
Handle: RePEc:zbw:bubdps:292013

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Keywords: sovereign debt; bank-level heterogeneity; bank risk;

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References

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  1. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  2. Luc Laeven & Ross Levine, 2008. "Bank Governance, Regulation, and Risk Taking," NBER Working Papers 14113, National Bureau of Economic Research, Inc.
  3. Viral V. Acharya & Sascha Steffen, 2013. "The “Greatest” Carry Trade Ever? Understanding Eurozone Bank Risks," NBER Working Papers 19039, National Bureau of Economic Research, Inc.
  4. Gennaioli, Nicola & Martin, Alberto & Rossi, Stefano, 2010. "Sovereign Default, Domestic Banks and Financial Institutions," CEPR Discussion Papers 7955, C.E.P.R. Discussion Papers.
  5. Acharya, Viral V & Steffen, Sascha, 2013. "The "Greatest" Carry Trade Ever? Understanding Eurozone Bank Risks," CEPR Discussion Papers 9432, C.E.P.R. Discussion Papers.
  6. Niccolò Battistini & Marco Pagano & Saverio Simonelli, 2013. "Systemic Risk and Home Bias in the Euro Area," European Economy - Economic Papers 494, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
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Cited by:
  1. Niccolò Battistini & Marco Pagano & Saverio Simonelli, 2013. "Systemic Risk, Sovereign Yields and Bank Exposures in the Euro Crisis," CSEF Working Papers 345, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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