Capital Requirements for Government Bonds - Implications for Financial Stability

André Sterzel and Ulrike Neyer

VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking from Verein für Socialpolitik / German Economic Association

Abstract: Banks hold relatively large amounts of government bonds. Large sovereign exposures reinforce possible financial contagion effects from sovereigns to banks and are a risk for financial stability. Using a theoretical model, we find that the introduction of capital requirements for government bonds induce banks to decrease their investment in government bonds and to increase their investment in high yield assets. This implies that banks' balance sheets become more resilient.

JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cta and nep-rmg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc17:168172

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