Determinants of Banks’ Home Bias

Drawing on our earlier Economonitor column on home bias and public debt sustainability (Asonuma, Bakhache and Hesse, 2015)[1], this blog briefly examines some of the potential determinants of banks’ home bias in sovereign debt. The favorable treatment of sovereign debt in the regulatory framework is sometimes complemented by policies that further support banks’ increased holdings […]

Is Banks’ Home Bias Good or Bad for Public Debt Sustainability?

Introduction and literature Issues related to the entrenched sovereign-bank nexus, particularly home bias—banks’ holdings of sovereign domestic debt—have gained prominence during the Global Crisis in recent years as public debt was rising especially in the European periphery.1Prompted by foreign investors’ flight as well as cheap Long-Term Refinancing Operations (LTRO) funding from the ECB, many peripheral […]