We develop a model of bank risk-taking with strategic sovereign default risk. Domestic banks invest in real projects … government's incentives to repay and therefore lowers its borrowing costs. For low levels of government debt, banks influence … default are perfectly correlated. Banks fail to account for how their bond purchases influence the government's default …

-level drivers of this relationship. We find that banks' home bias in their sovereign exposures and their low equity ratios as well …-bank nexus. While these results do not necessarily reflect causal relationships, they suggest that promoting banks …

In this paper, we use detailed data on the sovereign debt holdings of all German banks to analyse the determinants of …, sovereign bond holdings are heterogeneous across banks. Larger, weakly capitalised banks and banks with a small depositor base … hold more sovereign bonds. Around 31% of all German banks hold no sovereign bonds at all. Second, the sensitivity of banks …

I propose a dynamic general equilibrium model in which strategic interactions between banks and depositors may lead to … endogenous bank fragility and slow recovery from crises. When banks' investment decisions are not contractible, depositors form … complementarities and possibly multiple equilibria: in response to an increase in funding costs, banks may optimally choose to pursue …

We develop a model of bank risk-taking with strategic sovereign default risk. Domestic banks invest in real projects … government's incentives to repay and therefore lowers its borrowing costs. For low levels of government debt, banks influence … default are perfectly correlated. Banks fail to account for how their bond purchases influence the government's default …

extend and the foreign claims that banks extend via local affiliates primarily drive the impact. These results show that the …

Euro area governments have committed to break the doom loop between banks and sovereigns. But policymakers disagree on … reallocation by banks in response to regulatory reform. Simulations highlight a tension between concentration and credit risk in … opportunity set to include an area-wide low-risk asset. By reinvesting into such an asset, banks would reduce both their …