Bank asset reallocation and sovereign debt

Michele Fratianni and Francesco Marchionne ()

No 100, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper examines how banks around the world have resized and reallocated their earning assets in response to the subprime and sovereign debt crises. We focus especially on the interaction between sovereign debt and the bank asset allocation process. After the crisis we observe a general substitution away from loans and in favor of securities. Our econometric findings corroborate that banks have readjusted the composition of their assets and the overall regulatory credit risk by substituting securities for loans. Banks, furthermore, have also been sensitive to those variables that are of direct interest to the regulator. The picture that emerges is a mutual protection pact regime, in which high-debt governments exert pressure on banks-- either through the regulatory system or through moral suasion-- to privilege the purchase of government securities over credit to the private sector in exchange for receiving protection against default.

Keywords: crisis; loans; mutual protection pacr; regulator; securities (search for similar items in EconPapers)
JEL-codes: G01 G11 G21 G28 (search for similar items in EconPapers)
Pages: 39
Date: 2014-09
New Economics Papers: this item is included in nep-ban and nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir100.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Bank asset reallocation and sovereign debt (2017)
Working Paper: Bank asset reallocation and sovereign debt (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:100

Access Statistics for this paper

More papers in Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences Contact information at EDIRC.
Bibliographic data for series maintained by Maurizio Mariotti ().