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Banks and government bonds: a love story

Banks and government bonds: a love story

Can commercial banks act as lightning rods for government bonds in the midst of a financial storm? Is it possible to attribute banks’ home bias in sovereign exposures to something beyond their externally imposed incentives (such as moral suasion) or internally distorted incentives (such as risk-shifting)? Despite the called ‘doom loop’ between the two, could the relationship between banks and their domestic governments have an underexplored silver lining à la Butler (2008)?