This paper analyses the impact of different treatments of government bonds in bank liquidity regulation on financial stability. Using a theoretical model, we show that a sudden increase in sovereign default risk may lead to liquidity issues in the banking sector, implying the insolvency of a...

Recent policy discussion includes the introduction of diversification requirements for sovereign bond portfolios of European banks. In this paper, we evaluate the possible effects of these constraints on risk and diversification in the sovereign bond portfolios of the major European banks....

The euro crisis was fueled by the diabolic loop between sovereign risk and bank risk, coupled with cross-border flight-to-safety capital flows. European Safe Bonds (ESBies), a union-wide safe asset without joint liability, would help to resolve these problems. We make three contributions. First,...

This paper analyzes troubled banks' use of accounting discretion and its interaction with regulatory intervention in a time of financial distress. We analyze impairment losses that Europe's largest banks recognized on Greek Government Bonds (GGB) during 2011, the time during which GGB were...

In the beginning of 2020, the outbreak of the novel coronavirus placed significant strain on financial markets and especially affected commodity-producing countries like Canada. As the broad economy contracted, oil-exports fell, and the government imposed public health restrictions to contain...

Given the negative financial and economic shocks of the COVID-19 pandemic, the Bank of Canada (BoC) adopted several policies, including a suite of monetary policies, to maintain a healthy level of market liquidity. Among these measures, the BoC established the Canada Mortgage Bond Purchase...

Early in the COVID-19 crisis, non-financial businesses grew concerned that they would be unable to roll over their maturing bonds. To calm corporate debt markets, the Bank of Thailand (BOT) announced the Bond Stabilization Fund (BSF) on March 22, 2020. The BSF planned to purchase newly issued...

By March 2020, the quickly spreading novel coronavirus began disrupting business activity and industry, generating uncertainty throughout the global economy. As financial panic spread, Israeli investors fled to liquidity, impacting equities, corporate bonds, and even Israeli treasury securities....

In Canada, the shock of the COVID-19 crisis drove up bid-ask spreads on Government of Canada (GoC) bonds. The Bank of Canada (BoC) announced the Government Bond Purchase Program (GBPP) to support the functioning of its government bond market, support other market liquidity tools, and replace the...

This paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities. In our model, unprofitable banks have strong incentives to invest in risky assets when macroeconomic fundamentals are good in order to avoid the...