The Invisible Hand of the Government: Moral Suasion during the European Sovereign Debt Crisis
American Economic Journal: Macroeconomics
vol. 11,
no. 4, October 2019
(pp. 346-79)
(Complimentary)
Abstract
Using proprietary data on banks' monthly securities holdings, we show that during the European sovereign debt crisis, domestic banks in fiscally stressed countries were considerably more likely than foreign banks to increase their holdings of domestic sovereign bonds during months when the government needed to roll over a relatively large amount of maturing debt. This result cannot be explained by risk shifting, carry trading, or regulatory compliance. Domestic banks that received government support, are small, or with weaker balance sheets were particularly susceptible to "moral suasion," while governance of banks played less of a role.Citation
Ongena, Steven, Alexander Popov, and Neeltje Van Horen. 2019. "The Invisible Hand of the Government: Moral Suasion during the European Sovereign Debt Crisis." American Economic Journal: Macroeconomics, 11 (4): 346-79. DOI: 10.1257/mac.20160377Additional Materials
JEL Classification
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- E62 Fiscal Policy
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- H11 Structure, Scope, and Performance of Government
- H63 National Debt; Debt Management; Sovereign Debt
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