Concerns about fiscal sustainability and worsening balance sheet conditions of major banks triggered a doom loop between banks and sovereigns during the 2010-2013 sovereign debt crisis. Despite closer financial integration and additional institutional safeguards, the home bias, i.e. domestic bank holdings of domestic sovereign debt, is still high in most EU countries. Authors examine the effects of home bias on fiscal sustainability. In this paper, fiscal sustainability is understood in a broad sense of a government's ability to manage its finances in a way that ensures the long-term viability of its economic and social programmes, without compromising the stability of its financial system. […]