Domestic banks as lightning rods? Home bias during the Eurozone crisis
LEQS – LSE 'Europe in Question' Discussion Paper Series from European Institute, LSE
Governments and domestic banks in Europe have attracted criticism due to the heightening inclination of banks to hold more local sovereign debt in the midst of the crisis. This has traditionally been interpreted as an evidence of financial repression or moral suasion. By using a novel dataset on bank-level exposures to sovereign and private debt covering the entire Eurozone crisis, I confirm that sovereign debt has been reallocated from foreign to domestic banks at the peak of the crisis. Furthermore, this reallocation has been especially visible for banks as opposed to other domestic private agents and cannot be explained by the risk-shifting tendency of the banks located in troubled countries. However, in contrast to the previous literature focusing only on sovereign debt, I show that banks’ private sector exposures have suffered (at least) equally from a rising home bias. Finally, I present a direct information channel and demonstrate that foreign banks – free from moral suasion – located in informationally closer territories have relatively increased their exposures to crisis-countries.
Keywords: Home bias; Information asymmetries; Eurozone crisis; Sovereign debt (search for similar items in EconPapers)
JEL-codes: F21 F34 F36 G01 G11 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.lse.ac.uk/europeanInstitute/LEQS/LEQSPaper122.pdf [301 Moved Permanently]--> https://www.lse.ac.uk/europeanInstitute/LEQS/LEQSPaper122.pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eiq:eileqs:122
Access Statistics for this paper
More papers in LEQS – LSE 'Europe in Question' Discussion Paper Series from European Institute, LSE Contact information at EDIRC.
Bibliographic data for series maintained by Katjana Gattermann ().