The “crowding out” effect of sovereign debt

Odongo Kodongo ()
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Odongo Kodongo: University of the Witwatersrand

Development Finance Agenda, 2024, vol. 9, issue 5, 12-13

Abstract: Banks mobilize savings from savers and allocate them to economic agents appropriating deficits. The allocation creates assets in the banks’ balance sheets in the form of loans and advances, security holdings, and others. Although these assets may complement each other, a bank’s decision on the proportion of each one to hold in its portfolio is often a trade-off that is informed by the assets’ prices, riskiness and safety, and innovations in the macroeconomy. Thus, macroeconomic shocks affecting market prices and riskiness may induce adjustments to banks’ private sector credit supply.

Date: 2024
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