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Banks, Government Bonds, and Default: What do the Data Say?
Author:
Nicola Gennaioli null

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Alberto Martin null

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Stefano Rossi null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2014: Issue 120
Language:
English
Publication Date:
08 Jul 2014
DOI:
https://doi.org/10.5089/9781498391993.001
ISBN:
9781498391993
ISSN:
1018-5941
Pages:
53
Keywords:
WP; bank bondholdings; central bank; balance sheet; bank characteristic; Sovereign Risk; Sovereign Default; Government Bonds; bondholdings correspond; loan-to-asset ratio; Eurozone bank; bank level; bank assets; Bonds; Sovereign bonds; Loans; Stress testing; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks increase their exposure to public bonds, especially large banks and when expected bond returns are high. At the bank level, bondholdings correlate negatively with subsequent lending during sovereign defaults. This correlation is mostly due to bonds acquired in pre-default years. These findings shed light on alternative theories of the sovereign default-banking crisis nexus.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund