Banks and Sovereign Risk: A Granular View

Claudia Buch, Michael Koetter and Jana Ohls ()

No 12/2015, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: We identify the determinants of all German banks' sovereign debt exposures between 2005 and 2013 and test for the implications of these exposures for bank risk. Larger, more capital market affine, and less capitalised banks hold more sovereign bonds. Around 15% of all German banks never hold sovereign bonds during the sample period. The sensitivity of sovereign bond holdings by banks to eurozone membership and inflation increased significantly since the collapse of Lehman Brothers. Since the outbreak of the sovereign debt crisis, banks prefer sovereigns with lower debt ratios and lower bond yields. Finally, we find that riskiness of government bond holdings affects bank risk only since 2010.This confirms the existence of a nexus between government debt and bank risk.

Keywords: sovereign debt; bank-level heterogeneity; bank risk (search for similar items in EconPapers)
JEL-codes: G01 G11 G21 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Banks and sovereign risk: A granular view (2016)
Working Paper: Banks and sovereign risk: A granular view (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:iwh-12-15

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