Banks as buyers of last resort for government bonds?. CEPS Policy Insights No 2017/43, November 2017

Gros, Daniel. (2017) Banks as buyers of last resort for government bonds?. CEPS Policy Insights No 2017/43, November 2017. [Policy Paper]

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Abstract

A key remaining issue for the completion of the Banking Union is the concentrated exposure of banks in many countries to their own sovereign. This paper examines that the belief that banks should be allowed to buy large amounts of their own sovereign so that they can stabilise the market in a crisis and argues that it is mistaken for two reasons. In the first instance, banks are only intermediaries for private savings, and secondly, banks have a higher cost of funding than do their sovereign. The overall conclusion is that governments should make it more attractive for households (and other real money investors) to hold government debt directly.

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