EconPapers    
Economics at your fingertips  
 

The Sovereign-Bank Diabolic Loop and ESBies

Markus Brunnermeier (), Luis Garicano (), Philip Lane (), Marco Pagano (), Ricardo Reis, Tano Santos, David Thesmar, Stijn Van Nieuwerburgh and Dimitri Vayanos

No 21993, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free.

JEL-codes: E58 F34 G01 G15 G21 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2016-02
Note: AP CF IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (12) Track citations by RSS feed

Published as Markus K. Brunnermeier & Luis Garicano & Philip R. Lane & Marco Pagano & Ricardo Reis & Tano Santos & David Thesmar & Stijn Van Nieuwerburgh & Dimitri Vayanos, 2016. "The Sovereign-Bank Diabolic Loop and ESBies," American Economic Review, American Economic Association, vol. 106(5), pages 508-12, May.

Downloads: (external link)
http://www.nber.org/papers/w21993.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
Journal Article: The Sovereign-Bank Diabolic Loop and ESBies (2016) Downloads
Working Paper: The Sovereign-Bank Diabolic Loop and ESBies (2016) Downloads
Working Paper: The Sovereign-Bank Diabolic Loop and ESBies (2016) Downloads
Working Paper: The Sovereign-Bank Diabolic Loop and ESBies (2016) Downloads
Working Paper: The Sovereign-Bank Diabolic Loop and Esbies (2016) Downloads
Working Paper: The sovereign-bank diabolic loop and ESBies (2016) Downloads
Working Paper: The sovereign-bank diabolic loop and ESBies (2016) Downloads
Working Paper: The Sovereign-Bank Diabolic Loop and ESBies (2016) Downloads
Working Paper: The Sovereign-Bank Diabolic Loop and ESBies (2016) Downloads
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:nbr:nberwo:21993

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w21993
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Series data maintained by ().

 
Page updated 2017-09-29
Handle: RePEc:nbr:nberwo:21993