We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks increase their exposure to public bonds, especially large banks and when expected bond returns are high.
At the bank level, bond holdings correlate negatively with subsequent lending during sovereign defaults. This correlation is mostly due to bonds acquired in pre-default years. These findings shed light on alternative
theories of the sovereign default-banking crisis nexus.
The moral hazard incentives of the bank safety net predict that distressed banks take on more risk and higher leverage. Since many factors reduce these incentives, including charter value, regulation, and managerial incentives, the net economic...Read more
The Covid-19 crisis in 2020 severely impacted the corporate and in turn, the financial sectors of the UK, entailing responses from financial regulators to implement unprecedented regulatory suspensions that affect both the financial sector and...Read more
We address a puzzle whereby lending marketplaces, aimed at directly connecting retail lenders and borrowers, retreat from auctions and take on the role of price setting and credit allocation, despite evidence that retail investors possess...Read more
We examine whether engagement on environmental, social and governance (ESG) issues can benefit shareholders by reducing firms’ downside risk, measured using the lower partial moment and value at risk. Using a proprietary database, we provide...Read more