Bank Exposures and Sovereign Stress Transmission

By Carlo Altavilla, M. Pagano, S. Simonelli. Social Science Research Network, 2017

252 citations recorded by the source corpus.

Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the determinants of changes in banks’ sovereign exposures and their effects during and after the crisis. First, public, bailed out and poorly capitalized banks responded to sovereign stress by purchasing domestic public debt more than other banks, with public banks’ purchases growing especially in coincidence with the largest ECB liquidity injections. Second, bank exposures significantly amplified the transmission of risk from the sovereign and its impact on lending. This amplification of the impact on lending does not appear to arise from spurious correlation or reverse causality.

Subfields: Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/4eb7773d3fdb8538f0d8b70701e3ad4baecd7f7c

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Citations in the corpus

Mending the broken link: Heterogeneous bank lending rates and monetary policy pass-through (2020, methodology): “Our finding that exposure to sovereign debt matters is consistent with the evidence in Drechsler et al. (2014), Altavilla et al. (2016) and Peydró et al. (2016) about risk-shifting incentives during crisis times.”
Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis (2018, unknown): “Another possibility is though moral suasion, where governments force banks to hold risky government bonds as in Becker and Ivashina (2018), Altavilla et al. (2017) and in Ongena et al. (2017).”
ESBies: Safety in the Tranches (2017, background): “Source: ECB; Altavilla et al. (2016).”
Is there a zero lower bound? The effects of negative policy rates on banks and firms (2019, background): “As a consequence, banks contracted lending causing large negative effects on domestic borrowers (Altavilla, Pagano, and Simonelli, 2017; Acharya, Eisert, Eufinger, and Hirsch, 2018).”
The impact of macroeconomic news on Bitcoin returns (2020, unknown): “The inﬂuence of U.S. macroeconomic announcements has also been established for the U.S. futures markets (Evans [2011]), options markets (Verousis et al. [2016]), Treasury bond yields (Altavilla et al. [2017]), foreign exchange markets (Faust et al. [2007];)”