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Follow the yield: Unravelling the sovereign-bank nexus

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  • Kund, Arndt
  • Picarelli, Mattia
  • Solé, Juan

Abstract

This paper takes a long-term look at the sovereign-bank nexus, analysing not only the vulnerabilities that led to its build-up, but also the impact of post-GFC financial regulatory reforms, and unconventional monetary policy. Using a panel of euro area countries from 2003–2023, we show that a significant driver of banks’ holdings of domestic sovereign debt is search for yield, which holds for crisis and non-crisis periods. Interestingly, we also document a bond-supply effect that influences banks' decision to buy domestic sovereign debt and how unconventional monetary policy can affect banks’ investment strategies.

Suggested Citation

  • Kund, Arndt & Picarelli, Mattia & Solé, Juan, 2025. "Follow the yield: Unravelling the sovereign-bank nexus," Finance Research Letters, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:finlet:v:80:y:2025:i:c:s1544612325006403
    DOI: 10.1016/j.frl.2025.107380
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    References listed on IDEAS

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    1. Faour, Mohamad & Saad, Khaled, 2025. "Institutions and the sovereign-bank nexus in the MENA," Global Finance Journal, Elsevier, vol. 66(C).

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