Purchases of Sovereign Debt Securities by Italian Banks During the Crisis: The Role of Balance-Sheet Conditions

Abstract

This paper analyses the main microeconomic determinants of Italian banks' purchases of sovereign debt securities from 2007 to 2013, with special reference to their balance-sheet conditions. The analysis distinguishes two phases of the crisis-the period following the Lehman Brothers collapse and the sovereign debt crisis-and different types of banks (large and small). Results show that banks' specific characteristics and balance-sheet features do matter and that banks use government securities purchases to support their financial and economic conditions. The influence of the balance-sheet conditions differs according to the phase of the crisis and the type of bank.

Banking crises and business cycle: evidence for Italy(1861-2016)

“…The Italian case is interesting because the direction of causality is clearinitially the instability of the sovereign debt market affected domestic banks, and not vice versa (Angelini et al, 2014). The stronger impact of the second part of the crisis (the sovereign one) on banks is also proved by Affinito et al (2016).…”

A long-term analysis of efficiency in the Italian banking system from 1861 to 2010

“…The banking system, which until then had been controlled by the State, was privatised, both because major credit institutions had reported significant losses in their balance sheets, and because compliance with the Maastricht criteria required the reduction of high public debt. Finally, the Italian banking system has been strongly affected by the international crisis of 2007 ( Affinito et al, 2016 ). The sovereign debt crisis affected the Italian banks, which registered losses in their balance sheets for several reasons, such as the rapid increase of percentage of bad loans on the total loans, and the increasing cost that banks had to pay for financing in interbank, stock market and through di emissions of debt securities ( Bartoletto et al, 2018 ;Bank of Italy, 2011.…”

Learning from Revisions: A Tool for Detecting Potential Errors in Banks' Balance Sheet Statistical Reporting

“…Other types of liquid assets, such as the amount of public bonds held, may instead have a negative relationship with the magnitude of loan variation, as they represent an alternative form of profitable investment easy to substitute with loans if the bank wants to expand credit (Affinito, Albareto and Santioni, 2016;Bonaccorsi di Patti and Sette, 2012). Bad loans also have, in theory, a negative relationship with the growth of credit, given that they represent an inverse measure of the quality of bank's credit assets and, consequently, an inverse measure of the ability to expand it (Bonaccorsi di Patti and Sette, 2012).…”

“…A final advantage stems once again from the specific structure of the statistical production process. In building up a model specification that pins down the relevant independent variables able to explain banks' credit dynamics and to identify potential errors, we adopt the "supplyside" theory of credit (Adrian and Shin, 2010;Bonaccorsi di Patti and Sette, 2012;Jimenez et al, 2012;Bofondi, Carpinelli and Sette, 2013;De Bonis, Nuzzo and Stacchini, 2014;Cingano, Manaresi and Sette, 2016;Affinito, Albareto and Santioni, 2016). According to the latter (as opposed to the demand-side theory), loans dynamics depends mainly from bank balance sheet characteristic and not from demand variables.…”