Portfolio choice of financial institutions and sovereigns : implications for financial stability

Eidam, Frederik

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URL: https://madoc.bib.uni-mannheim.de/44926
URN: urn:nbn:de:bsz:180-madoc-449269
Document Type: Doctoral dissertation
Year of publication: 2018
Place of publication: Mannheim
University: Universität Mannheim
Evaluator: Steffen, Sascha
Date of oral examination: 25 April 2018
Publication language: English
Institution: Business School > Finanzmärkte (Steffen 2009-2011,2016-2017)
License: CC BY 4.0 Creative Commons Attribution 4.0 International (CC BY 4.0)
Subject: 330 Economics
Subject headings (SWD): Portfoliomanagement , Finanzinstitutionen , Staatsschulden , Finanzstabilität
Keywords (English): Portfolio choice, financial institution, sovereign, financial stability, sovereign debt, maturity structure, market segmentation, central bank liquidity provision, long-term refinancing operations, interconnectedness, syndicated loans , systemic risk
Abstract: Promoting the stability of the financial system is considered to be a key objective by politicians, policy makers and regulators to support worldwide economic development (e.g., ECB (2007), World Bank (2013)). Understanding that the portfolio choice of financial intermediaries and sovereigns plays an important role resulted in various pieces of regulation and guidelines with the aim to promote the stability of individual institutions and the financial system as a whole (e.g. BIS (2010), IMF and World Bank (2014)). However, the global financial crisis of 2007-2009 and the European sovereign debt crisis of 2010-2012 demonstrated that it still eludes us how this objective can be achieved. The global financial crisis demonstrated how quickly risks can spread across highly interconnected financial institutions causing a global systemic crisis and worldwide economic downturn. One important factor of these risk spillovers among financial institutions is commonality in asset holdings (e.g., Shleifer and Vishny (1992, 2011), Kiyotaki and Moore (1997)). In addition, the European sovereign debt crisis highlighted that the health of financial institutions and sovereigns are intertwined and that sovereign instability can be an important source of risk to the financial system (e.g., Laeven (forthcoming)). One important factor of sovereign instability is the maturity structure of sovereign debt, which affects sovereigns’ exposure to rising funding costs and exclusions from financial markets.

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