European Central Bank's three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short …-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as …

. Yet, many banks suddenly experience funding dry-ups. Dry-ups predict, but do not cause, future deterioration of bank …

particular, we show that being a weakly capitalized bank is not related to higher holdings of domestic sovereign debt. While a … strong link is present between central bank liquidity support and sovereign holdings, opportunistic strategies or reach … advantage of their higher risk-bearing capacity to gain exposure (via central bank liquidity) to the set of riskier sovereign …

, in the context of the eurozone periphery, the increase in domestic government bond holdings, the reduction of bank credit …

choices when determining their own. This effect is asymmetric and not present in bank capital choices. Importantly, I find …

reduces the demand for bank loans and bank profits, which further disrupts the financial sector and increases the probability … increasing aggregate investment. On the contrary, policies encouraging bank lending can have the opposite effect. …