Banking regulation with risk of sovereign default

• 成果类型: Article
• 署名作者: D'Erasmo, Pablo; Livshits, Igor; Schoors, Koen
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Philadelphia; Ghent University
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2024.103917
• 发表日期: 2024
• 关键词: Banking; sovereign default; Prudential regulation; Financial crisis

摘要

Banking regulation routinely designates domestic government debt as safe, even when this debt is risky. We show, in a parsimonious model, that this failure to recognize the riskiness of government debt induces domestic banks to gamblewith depositors' funds by purchasing risky government bonds and assets correlated with them. Sovereign defaults then result in banking crises; however, by permitting banks to gamble, the regulator lowers the government's borrowing costs ex -ante. Thus, the government has an incentive to ignore the riskiness of the sovereign bonds. We derive a set of testable implications and present supporting empirical evidence from sovereign debt crises in Russia, Argentina, and the Eurozone.