In this paper, we use detailed data on the sovereign debt holdings of all German banks to analyse the determinants of sovereign debt exposures and the implications of sovereign exposures for bank risk. Our main findings are as follows. First, sovereign bond holdings are heterogeneous across...

Using a comprehensive dataset from German banks, we document the usage of sovereign credit default swaps (CDS) during the European sovereign debt crisis of 2008-2013. Banks used the sovereign CDS market to extend, rather than hedge, their long exposures to sovereign risk during this period....

We use a unique security-level data set to analyze correlations in bond trading of banks, their respective retail customers and their affiliated mutual funds. Matching banks' proprietary holdings with the holdings of their funds and their retail customers for the period 2009-2016 at the security...

The establishment of a sovereign debt restructuring mechanism (SDRM) is one of the important issues in the academic debate on a viable constitution for the European Monetary Union (EMU). Yet the topic seems to be taboo in official reform contributions to the debate. Against this backdrop, the...

There are at least two reasons why sustainability of public debt is an issue of increasing importance. First, public choice considerations show the danger of an excessive use of deficit finance in a democracy. Second, the conditions of a European Monetary Union (EMU) imply further incentives for...

We develop a model of bank risk-taking with strategic sovereign default risk. Domestic banks invest in real projects and purchase government bonds. While an increase in bond purchases crowds out profitable investments, it improves the government's incentives to repay and therefore lowers its...

Monetary policy leaves a fiscal footprint. In some circumstances, relieving the fiscal burden becomes the main goal of policy, and inflation control is subordinate. This article notes that the same is true of macroprudential policy, and it characterizes the size and sign of its fiscal footprint,...

This paper explores how selective default expectations affect the pricing of sovereign bonds in a historical laboratory: the German default of the 1930s. We analyze yield differentials between identical government bonds traded across various creditor countries before and after bond market...