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

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  • Affinito, Massimiliano
  • Albareto, Giorgio
  • Santioni, Raffaele

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.

Suggested Citation

  • Affinito, Massimiliano & Albareto, Giorgio & Santioni, Raffaele, 2022. "Purchases of sovereign debt securities by banks during the crisis: The role of balance sheet conditions," Journal of Banking & Finance, Elsevier, vol. 138(C).
    • Handle: RePEc:eee:jbfina:v:138:y:2022:i:c:s0378426619301438
    DOI: 10.1016/j.jbankfin.2019.06.007
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    2. Berrospide, Jose M., 2022. "IFABS 2017: Towards an Integrated View of Financial Regulation: Key Lessons from the Crisis and Future Challenges," Journal of Banking & Finance, Elsevier, vol. 138(C).
    3. Swapan-Kumar Pradhan & Elod Takats & Judit Temesvary, "undated". "How does fiscal policy affect the transmission of monetary policy into cross-border bank lending? Cross-country evidence," BIS Working Papers 1226, Bank for International Settlements.
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    5. Carlos Alberto Piscarreta Pinto Ferreira, 2023. "Drivers of Sovereign Bond Demand – The Case of Japans," Working Papers REM 2023/0264, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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    More about this item

    Keywords

    Financial crisis; Securities portfolio; Banks’ balance sheets; Sovereign risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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