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Banks and sovereign risk: A granular view

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

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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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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  1. Huang, Rocco & Ratnovski, Lev, 2010. "The dark side of bank wholesale funding," Working Paper Series 1223, European Central Bank.
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  16. Viral Acharya & Itamar Drechsler & Philipp Schnabl, 2014. "A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk," Journal of Finance, American Finance Association, vol. 69(6), pages 2689-2739, December.
  17. 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.
  18. Chiara Angeloni & Guntram B. Wolff, 2012. "Are banks affected by their holdings of government debt?," Working Papers 717, Bruegel.
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