TY  - BOOK
AU  - Brunnermeier,Markus K.
AU  - Garicano,Luis
AU  - Lane,Philip
AU  - Pagano,Marco
AU  - Reis,Ricardo
AU  - Santos,Tano
AU  - Thesmar,David
AU  - Van Nieuwerburgh,Stijn
AU  - Vayanos,Dimitri
ED  - National Bureau of Economic Research.
TI  - The Sovereign-Bank Diabolic Loop and ESBies
T2  - NBER working paper series
PY  - 2016///
CY  - Cambridge, Mass.
PB  - National Bureau of Economic Research
N1  - February 2016; Hardcopy version available to institutional subscribers
N2  - We propose a simple model of the sovereign-bank diabolic loop, and establish four results. First, the diabolic loop can be avoided by restricting banks domestic sovereign exposures relative to their equity. Second, equity requirements can be lowered if banks only hold senior domestic sovereign debt. Third, such requirements shrink even further if banks only hold the senior tranche of an internationally diversified sovereign portfolio known as ESBies in the euro-area context. Finally, ESBies generate more safe assets than domestic debt tranching alone; and, insofar as the diabolic loop is defused, the junior tranche generated by the securitization is itself risk-free
UR  - https://www.nber.org/papers/w21993
UR  - http://dx.doi.org/10.3386/w21993
ER  -