Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/193564
Authors: 
Crosignani, Matteo
Year of Publication: 
2017
Series/Report no.: 
ESRB Working Paper Series 57
Abstract: 
I develop a model where the sovereign debt capacity depends on the capitalization of domestic banks. Low-capital banks optimally tilt their government bond portfolio toward domestic securities, linking their destiny to that of the sovereign. If the sovereign risk is sufficiently high, low-capital banks reduce private lending to further increase their holdings of domestic government bonds, lowering sovereign yields and supporting the home sovereign debt capacity. The model rationalizes, in the context of the eurozone periphery, the increase in domestic government bond holdings, the reduction of bank credit supply, and the prolonged fragility of the financial sector.
Subjects: 
Bank Capital
Sovereign Crises
Risk-Shifting
Government Bonds
Bank Credit
JEL: 
E44
F33
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-95210-44-8
Document Type: 
Working Paper

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