Abstract: We analyse 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, bond holdings 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.
Bio sketch: Nicola Gennaioli is Full Professor of Finance at Bocconi University and a research fellow at CEPR. He earned his PhD in Economics from Harvard University in 2004. He held positions at IIES, Stockholm University, and at CREI, UPF. In 2009 he was awarded a European Research Council Starting Grant. His fields of expertise are psychology and economics, finance, political economy and economic development. He has published articles in The Quarterly Journal of Economics, the Journal of Political Economy, The American Economic Review, The Review of Economic Studies, The Journal of Finance, the Journal of Financial Economics, and The Review of Financial Studies. He is coeditor of the Journal of the European Economic Association and associate editor of The Review of Economic Studies, The Economic Journal, the Journal of Development Economics, and the Review of Finance.
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