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The invisible hand of the government: "Moral suasion" during the European sovereign debt crisis


  • van Horen, Neeltje
  • Ongena, Steven
  • Popov, Alexander


Using proprietary data on banks’ monthly securities holdings, we find that during the European sovereign debt crisis, domestic banks in fiscally stressed countries were considerably more likely than foreign banks to increase their holdings of domestic sovereign bonds in months with relatively high domestic sovereign bond issuance. This effect is stronger for state†owned banks and for banks with low initial holdings of domestic sovereign bonds, and it is not fuelled by Central Bank liquidity provision. Our results point to a “moral suasion†mechanism, and they are not driven by concurrent risk†shifting, carry†trading, regulatory compliance, or shocks to investment opportunities.

Suggested Citation

  • van Horen, Neeltje & Ongena, Steven & Popov, Alexander, 2016. "The invisible hand of the government: "Moral suasion" during the European sovereign debt crisis," CEPR Discussion Papers 11153, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11153

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    References listed on IDEAS

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    More about this item


    Sovereign debt; Sovereign†bank loop; Moral suasion;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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