Banks, Government Bonds, and Default : What do the Data Say?

Author/Editor:

Nicola Gennaioli ; Alberto Martin ; Stefano Rossi

Publication Date:

July 8, 2014

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks increase their exposure to public bonds, especially large banks and when expected bond returns are high. At the bank level, bondholdings correlate negatively with subsequent lending during sovereign defaults. This correlation is mostly due to bonds acquired in pre-default years. These findings shed light on alternative theories of the sovereign default-banking crisis nexus.

Series:

Working Paper No. 14/120

Subject:

English

Publication Date:

July 8, 2014

ISBN/ISSN:

9781498391993/1018-5941

Stock No:

WPIEA2014120

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

53

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