Banks, government bonds, and default: What do the data say?

Nicola Gennaioli, Alberto Martin, Stefano Rossi 19 July 2014

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Recent events in Europe have illustrated how government defaults can jeopardise domestic bank stability. Growing concerns of public insolvency since 2010 caused great stress in the European banking sector, which was loaded with Euro-area debt (Andritzky 2012). Problems were particularly severe for banks in troubled countries, which entered the crisis holding a sizeable share of their assets in their governments’ bonds – roughly 5% in Portugal and Spain, 7% in Italy, and 16% in Greece (2010 EU Stress Test).

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Topics:  Financial markets

Tags:  sovereign debt, financial crises, banking, banks, bonds, sovereign default, credit, bank lending, risk-weighting

Currency intervention as global monetary easing: The case of Japan in 2003-04

Petra Gerlach-Kristen, Robert McCauley, Kazuo Ueda 07 November 2012

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One consequence of monetary easing in major economies most affected by the financial crisis is the subsequent currency appreciation in apparently separate economies that are less affected by the crisis, such as those of Japan, Switzerland, and many emerging economies. Policymakers in these countries have, to varying extents, resisted the appreciation of their currencies by intervening in the foreign exchange market. Increasingly, observers have emphasised the potential for currency tensions under the current circumstances.

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Topics:  Exchange rates Financial markets Global crisis International finance

Tags:  exchange rates, monetary policy, Japan, bonds, Eurozone crisis

Government bonds and their investors: What are the facts and do they matter?

Jochen Andritzky 05 August 2012

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Prior to the start of the global crisis in late 2008, global imbalances, reserve accumulation and regulatory changes fostered greater cross-border integration of sovereign debt markets as measured by the share of government securities held by non-residents.

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Topics:  Global crisis International finance

Tags:  global crisis, bonds, government debt, global markets

In the slipstream of the Greek debt exchange

Jeromin Zettelmeyer, Mitu Gulati 05 March 2012

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One of the most interesting questions arising from the ongoing Greek debt restructuring is what it implies about the feasibility – or lack of feasibility – of ‘voluntary’ debt restructurings. This issue is of first-order importance because it has implications for how other countries in the Eurozone (and indeed outside) may want to conduct such restructurings, if it comes to that point.

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Topics:  Europe's nations and regions International finance

Tags:  sovereign debt, bonds, Greece, EZ crisis

Papi’s tax

Tito Boeri 04 October 2011

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Around mid June 2011, the CDS over five-year Italian governments bonds, which measures the cost of insurance against a sovereign default, was about 80 basis points lower than the CDS of the Spanish bonds (bonos) with the same maturity. Today Italian five-year government bonds are insured at 70 basis points above the bonos. Spreads of Italian bonds and bonos vis-à-vis the German Bunds experienced similar developments. From having spreads 70 basis points lower than Spain, Italy has now a spread which is over 40 points higher than Spain.

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Topics:  Europe's nations and regions International finance

Tags:  Italy, Spain, spreads, bonds

Euro-area sovereign risk during the crisis

Silvia Sgherri, Edda Zoli 17 November 2009

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On the heels of the crisis, sovereign risk premium differentials in the euro area have been widening. Although the perceived risk of default for euro-area countries remains generally low, financial markets appear to have been increasingly discriminating among government issuers while requiring overall higher risk premiums (Figure 1). Specifically, the spreads on the yield on 10-year government bonds over Bunds spiked in January 2009 for various euro-area members, accompanied by downgrades of sovereign debt ratings for Greece, Spain, and Portugal and a warning for Ireland.

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Topics:  International finance

Tags:  spreads, bonds, sovereign risk

Government guarantees on bank funding: Should we extend them into 2010 despite the improved bank profitability and the schemes’ distortionary effects?

Aviram Levy, Fabio Panetta 03 November 2009

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In December 2009, the government guarantee schemes for bank bonds that were adopted last autumn will close to new issuance in many EU countries (with guarantees already issued expiring typically in 2012), unless the authorities decide to extend them.1 These schemes were meant to help banks retain access to wholesale funding in the aftermath of Lehman Brothers’ demise, when money and corporate bond markets were severely disrupted.

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Topics:  Financial markets

Tags:  global crisis, bonds, government guarantees

A “systemic vulnerability index”: Measuring risk in the asset generation chain

Leonardo Felli, Luca Anderlini 22 August 2009

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Civil aviation is remarkably safe. IATA numbers put the probability of death at roughly one in 7.7 million passenger/flights in 2008. This makes air travel about 120 times less dangerous than car travel in the US, although the numbers are hard to compare.

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Topics:  Financial markets

Tags:  systemic risk, bonds, systemic vulnerability index