Link to the University of Pittsburgh
Link to the University Library SystemContact us link
AEI Banner

Domestic banks as lightning rods? Home bias during the Eurozone crisis. LEQS Discussion Paper No. 122/2017 February 2017

Saka, Orkun (2017) Domestic banks as lightning rods? Home bias during the Eurozone crisis. LEQS Discussion Paper No. 122/2017 February 2017. [Discussion Paper]

[img] PDF - Published Version
Download (2155Kb)

    Abstract

    Governments and domestic banks in Europe have attracted criticism due to the heightening inclination of banks to hold more local sovereign debt in the midst of the crisis. This has traditionally been interpreted as an evidence of financial repression or moral suasion. By using a novel dataset on bank-level exposures to sovereign and private debt covering the entire Eurozone crisis, I confirm that sovereign debt has been reallocated from foreign to domestic banks at the peak of the crisis. Furthermore, this reallocation has been especially visible for banks as opposed to other domestic private agents and cannot be explained by the risk-shifting tendency of the banks located in troubled countries. However, in contrast to the previous literature focusing only on sovereign debt, I show that banks’ private sector exposures have su��ered (at least) equally from a rising home bias. Finally, I present a direct information channel and demonstrate that foreign banks – free from moral suasion – located in informationally closer territories have relatively increased their exposures to crisis-countries.

    Export/Citation:EndNote | BibTeX | Dublin Core | ASCII (Chicago style) | HTML Citation | OpenURL
    Social Networking:
    Item Type: Discussion Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > banks/financial markets
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > London School of Economics and Political Science (European Institute) > LEQS Discussion Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 03 Aug 2018 21:39
    Number of Pages: 58
    Last Modified: 22 Aug 2018 17:07
    URI: http://aei.pitt.edu/id/eprint/93621

    Actions (login required)

    View Item

    Document Downloads