Financial Repression in the European Sovereign Debt Crisis
Bo Becker,Victoria Ivashina +1 more
TLDR
This paper showed that increased domestic government bond holdings generated a crowding out of corporate lending, which negatively impacts private capital formation. But they found that loan supply was depressed by these domestic sovereign bonds only during the crisis period (2010-11).Abstract:
At the end of 2013, the share of government debt held by the domestic banking sectors of Eurozone countries was more than twice the amount held in 2007. We show that increased domestic government bond holdings generated a crowding out of corporate lending. We find that loan supply was depressed by these domestic sovereign bonds only during the crisis period (2010-11). The pattern also holds across firms with different relationship banks within a given countries. These findings suggest that sovereign bond holdings negatively impact private capital formation. We show that direct government ownership, as well as government influence through banks' boards of directors, are among the channels used to influence banks.read more
Figures
TABLE 4—FIRM TIME-VARYING CHARACTERISTICS, 2010-2013 
FIGURE 2. FRACTION OF BANK-HELD SOVEREIGN BONDS HELD BY DOMESTIC BANKS 
FIGURE 1. THE EVOLUTION OF PUBLIC DEBT, 2000-2013 
TABLE 5— RELATIONSHIP BANKS’ BALANCE SHEETS AND BANK CREDIT SUPPLY, 2010-2013 
TABLE 8—DOMESTIC SOVEREIGN DEBT AND BANK CREDIT SUPPLY 
TABLE 1—SAMPLE DISTRIBUTION OF LOAN VS. BOND CHOICE
Citations
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Real Effects of the Sovereign Debt Crisis in Europe: Evidence from Syndicated Loans
TL;DR: Karolyi et al. as mentioned in this paper explored the causes of the credit crunch during the European sovereign debt crisis and its impact on the corporate policies of European firms and found that value impairment in banks' exposures to sovereign debt and the risk-shifting behavior of weakly capitalized banks reduced the probability of firms being granted new syndicated loans by up to 53%.
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Safe haven in GFC versus COVID-19: 100 turbulent days in the financial markets
TL;DR: In this paper, a bivariate Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity model within the world's dominant financial asset classes represented by sovereign bonds, commodities, and major exchange rates was used to characterize the correlation within the major asset classes among the Global Financial Crisis (GFC) and COVID-19's 100 days.
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Bank Exposures and Sovereign Stress Transmission
TL;DR: In this paper, the determinants of banks' sovereign exposures and their effects on lending during and after the crisis were investigated using novel monthly data for 226 euro-area banks from 2007 to 2015.
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Monetary stimulus and bank lending
TL;DR: In this article, the US Federal Reserve purchased both agency mortgage-backed securities (MBS) and Treasury securities to conduct quantitative easing, and the results suggest that MBS purchases caused unintended real effects and that Treasury purchases did not cause a large positive stimulus to the economy through the bank lending channel.
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Household Debt in OECD Countries: The Role of Supply-Side and Demand-Side Factors
TL;DR: In this article, the determinants of household debt using a dataset of 33 countries and taking into account both demand-side and supply-side factors are studied, showing that household debt is higher in countries with social-democratic and liberal welfare models than in conservative and Eastern European welfare states.
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