Bongaerts, Dion, Schoenmaker, Dirk , (2017), “A call for uniform sovereign exposure limits”, Bruegel, 28 March
In recent years we have seen sovereign financial problems spilling into the banking sector because the banking sectors have held a very large share of the domestic sovereign debt. This is clearly not desirable. First, by buying these domestic sovereign bonds, the banking sector allows governments to overspend. Second, the excess bad sovereign debt crowds out private credit to the real economy (Acharya et al, 2016). This creates a negative feedback effect on the economy. Third, banks that are overloaded with domestic government bonds eventually might have to bailed out, which continues the the vicious cycle between governments and banks. This loop was at heart of the euro-sovereign crisis.
- “In search of a European solution for banks’ non-performing loans”Onado, Marco, (2017), , VoxEu, 21 February
- European Central Bank, (2016), “Addressing market failures in the resolution of nonperforming loans in the euro area”, ECB, 22 November