Bailouts, Moral Hazard and Bankss Home Bias for Sovereign Debt

2016 ◽  
Author(s):  
Gaetano Gaballo ◽  
Ariel Zetlin-Jones
Keyword(s):  
Moral Hazard ◽  
Sovereign Debt ◽  
Home Bias

scholarly journals Bailouts, moral hazard and banks׳ home bias for Sovereign debt

2016 ◽  
Vol 81 ◽  
pp. 70-85 ◽  
Author(s):  
Gaetano Gaballo ◽  
Ariel Zetlin-Jones
Keyword(s):  
Moral Hazard ◽  
Sovereign Debt ◽  
Home Bias

Eurobonds: Three Lessons from China’s “Debt Centralization/Decentralization” Experience

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Zhiyong An
Keyword(s):  
Moral Hazard ◽  
Euro Area ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Budget Constraint ◽  
Sovereign Debt Crisis ◽  
The European Union ◽  
Member States ◽  
Institutional Mechanism ◽  
Previous Series

Abstract Eurobonds, dubbed as Coronabonds in the context of the current coronavirus crisis, are being hotly debated among the euro area member states amid the COVID-19 pandemic. The debate is in many ways a retread of the euro area sovereign debt crisis of 2011–2012. As China’s “debt centralization/decentralization” experience is comparable with the introduction of Eurobonds in the European Union (EU) in terms of institutional mechanism design, we review our previous series of studies of China’s “debt centralization/decentralization” experience to shed some light on the Eurobonds debate. We obtain three key lessons. First, the introduction of Eurobonds in EU is likely to soften the budget constraint of the governments of the euro area member states. Second, it is also likely to strengthen the moral hazard incentives of the governments of the euro area member states to intentionally overstate their budget problems. Finally, the magnitudes of the moral hazard effects generated by the introduction of Eurobonds in EU are likely larger than their respective counterparts in China.

scholarly journals International Evidence on the Determinants of Domestic Sovereign Debt Bank Holdings

2019 ◽  
Vol 58 (2-3) ◽  
pp. 143-160
Author(s):  
Dimitris K. Chronopoulos ◽  
George Dotsis ◽  
Nikolaos T. Milonas
Keyword(s):  
Sovereign Debt ◽  
Home Bias ◽  
Government Ownership ◽  
Government Bonds ◽  
Bank Ownership ◽  
Specific Factors ◽  
Quality Of Governance ◽  
Domestic Banks ◽  
Country Specific

Abstract In this paper, we examine the determinants of bank holdings of domestic sovereign debt with a panel dataset of 295 banks in 35 countries between 2002 and 2013. The findings indicate that the structure of bank ownership (domestic, foreign, or government ownership), the quality of governance, and the level of financial development of the countries in which banks operate all determine the level of home bias. Specifically, we find that domestic banks tend to hold more domestic sovereign debt relative to their foreign counterparts. We also provide evidence that home bias is even stronger when the domestic bank is controlled by its government. Moreover, home bias increases when government bonds are more risky, home governments are less effective, and when banking systems are less financially developed. Overall, we find that banks’ home bias in holding sovereign debt is an international phenomenon that is determined by both bank- and country-specific factors.

Finanzhilfen bei internationalen Verschuldungskrisen?

2010 ◽  
Vol 61 (1) ◽  
pp. 1-20
Author(s):  
Dina D. Dreisbach ◽  
Hans Fehr ◽  
Fabian Kindermann
Keyword(s):  
Moral Hazard ◽  
Financial Support ◽  
Sovereign Debt ◽  
Numerical Solutions ◽  
Strategic Uncertainty ◽  
Trade Off ◽  
Liquidity Provision ◽  
Optimal Policies ◽  
Private Investors ◽  
Catalytic Effects

SummaryThe present paper focuses on the trade-off between official liquidity provision and debtor moral hazard in sovereign debt problems. The financial crisis is caused by the interaction of bad fundamentals, self-fulfilling runs of private investors and optimal policies of the national government and the official lender. Building on the global games approach of Morris and Shin (2006), we extend their analysis by calculating numerical solutions for different values of fundamental and strategic uncertainty. Our results indicate that limited financial support may even strengthen government efforts and improve welfare when fundamentals are weak but not too weak. On the other hand, we are also able to identify debtor moral hazard and welfare reducing catalytic effects with stronger fundamentals.

War, Moral Hazard, and Ministerial Responsibility: England After the Glorious Revolution

2011 ◽  
Vol 71 (1) ◽  
pp. 133-161 ◽  
Author(s):  
Gary W Cox
Keyword(s):  
Moral Hazard ◽  
Sovereign Debt ◽  
Central Element ◽  
Central Problem ◽  
Glorious Revolution ◽  
Credible Commitment ◽  
Ministerial Responsibility ◽  
The Glorious Revolution ◽  
Douglass North ◽  
The Revolution

I reexamine Douglass North and Barry Weingast's argument regarding credible commitment and sovereign debt in post-revolution England. The central problem that the architects of the revolution settlement had to solve, I argue, was not the king's frequent reneging on financial commitments (a symptom), but the moral hazard that generated the kings' malfeasance (the underlying cause). The central element of the revolution settlement was thus not better holding kings to their commitments, but better holding royal advisors to account for all consequences of the Crown's policies—through what we now call ministerial responsibility.

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