Purchases of sovereign debt securities by banks during the crisis: The role of balance sheet conditions

The Invisible Hand of the Government: Moral Suasion during the European Sovereign Debt Crisis

“…12 We also find that prior to the crisis, there is no statistical difference in the propensity to increase holdings of domestic sovereign bonds between domestic and foreign banks in both low-and high-need months. Finally, we also document a similar pattern between domestic and foreign banks when we compare the bank-specific variation over time in the propensity to 11 For each variable in Table 1, we first calculate the average per bank over the period before the sovereign debt crisis. We then take the average for the group of domestic and the group of foreign banks.…”

“…We find that domestic banks are on average larger and have a smaller deposit base, but are not significantly different in terms of their loan to deposit ratio and their capitalization. 11 While not necessarily observationally equivalent across all dimensions, domestic and foreign banks are thus relatively similar across a number of observable characteristics.…”

A new measure for gauging the riskiness of European Banks’ sovereign bond portfolios

“…Sovexpcountryjt is the weighted sovereign exposure of bank i towards each country j at time t. The higher the value of SovRisk, the higher the risk of the corresponding bank sovereign bond portfolio. 4 In a second stage of our analysis, we employ the System-Generalised Method of Moments (S-GMM) estimator, two-step procedure, in order to account for the potential endogeneity of the determinants of banks' sovereign bond holdings (Gennaioli et al, 2018;Affinito et al, 2019).…”

“…for bank i at time t. 5 𝑌 𝑖𝑡−1 is the lagged value of the dependent variable, included to control for time persistence. Vector X comprises a set of lagged bank-specific variables, commonly employed in the banking literature (for example, Gennaioli et al, 2018;Affinito et al, 2019), as proxies for bank size (Size), loans outstanding (Lending), non-performing loans (NPLs), capitalisation (CET1), profitability (ROE), liquidity (Liquidity), business model orientation (Business model) and solvency (Z-score). Vector Z consists of exogenous country-level factors, such as short-term interest rates (STrate), the amount of sovereign debt (SovDebt) and GDP growth (GDP), able to influence banks' preference to purchase sovereign bonds.…”

Bank Liquidity Hoarding Strategies in Uncertain Times: New Evidence from an Emerging Market with Bank-level Data

“…We allow for bank risk based on the argument that riskier banks tend to hold a larger buffer of liquid assets due to the precautionary motive (Ashraf, 2020). For bank capital, its consideration is motivated by the fact that more poorly capitalized banks may possess more substantial incentives to expand their liquid assets and enhance their capital adequacy ratios (Affinito et al, 2019). Under the "search for yield" hypothesis, banks may choose to invest in "high risk and high return" assets, implying a reduction in liquidity holdings when their profits are hurt (Dell' Ariccia et al, 2014).…”