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The Sovereign’S Bankers

In: The Public Debt Problem

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  • Pierre Lemieux

Abstract

Banks are only one of the sovereign’s lenders, but their holdings of government securities are not insignificant. Consider Europe. At the end of 2010, domestic and European sovereign securities made up about 5 percent of their total assets, to which must be added another 4 percent of straight bank loans to European governments.1 The amount of sovereign debt often represented a sizeable part of the bank shareholders’ equity (and more than total equity in Belgian banks). The BIS notes that “in advanced economies, banks often have sizeable exposures to the home sovereign, and generally have a strong home bias in their sovereign portfolios.” 2 In the United States, it is estimated that 2 percent of commercial banks’ total assets are made of Treasury securities, but the proportion jumps to 13 percent if we add mortgage securities guaranteed by federal agencies and GSEs. 3 So we can say that banks allocate about 10 percent of their assets to supporting the sovereign (not counting munis).

Suggested Citation

  • Pierre Lemieux, 2013. "The Sovereign’S Bankers," Palgrave Macmillan Books, in: The Public Debt Problem, chapter 0, pages 93-110, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-31302-7_7
    DOI: 10.1057/9781137313027_7
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