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

Massimiliano Affinito, Giorgio Albareto and Raffaele Santioni ()

Journal of Banking & Finance, 2022, vol. 138, issue C

Abstract: The literature exploring the determinants of the increase in sovereign debt securities in banks’ portfolios during the crisis generally adopted a macroeconomic perspective (governments’ moral suasion, redenomination risk, etc.). This study adopts a microeconomic approach and analyzes the main bank-by-bank determinants of the purchases by investigating Italian banks’ balance sheet conditions from 2007 to 2013. The results show that banks’ specific balance sheet characteristics matter, and banks buy government securities to support their financial conditions. The high liquidity of government bonds, high yields, and convenience in terms of capital charges make them well suited to satisfying banks’ needs in periods of intense liquidity demand, declining bank profitability and loan quality, and rising capital constraints.

Keywords: Financial crisis; Securities portfolio; Banks’ balance sheets; Sovereign risk (search for similar items in EconPapers)
JEL-codes: G01 G21 H63 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jbankfin.2019.06.007

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