Nikolay Hristova, Oliver Hülsewigb, Johann Scharlerc
We explore the effects of the ECB's unconventional monetary policy on the banks' sovereign debt portfolios. In particular, using panel vector autoregressive (VAR) models we analyze whether banks increased their domestic government bond holdings in response to nonstandard monetary policy shocks, thereby possibly promoting the sovereign-bank nexus, i.e., the exposure of banks to the debt issued by the national government. Our results suggest that euro-area crisis countries' banks enlarged their exposure to domestic sovereign debt after innovations related to unconventional monetary policy. Moreover, the restructuring of sovereign debt portfolios was characterized by a home bias.
JEL Code: C32, E30, E52, G21, H63.
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a Deutsche Bundesbank and CESifo
b Munich University of Applied Sciences and CESifo
c University of Innsbruck