Erschienen:
Cambridge, Mass: National Bureau of Economic Research, May 2013
Erschienen in:NBER working paper series ; no. w19039
Umfang:
1 Online-Ressource
Sprache:
Englisch
DOI:
10.3386/w19039
Identifikator:
Reproduktionsnotiz:
Hardcopy version available to institutional subscribers
Entstehung:
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Beschreibung:
We show that Eurozone bank risks during 2007-2012 can be understood as a "carry trade" behavior. Bank equity returns load positively on peripheral (Greece, Ireland, Portugal, Spain and Italy, or GIPSI) bond returns and negatively on German government bond returns, a position that generated "carry" until the deteriorating GIPSI bond returns inflicted losses on banks. The positive GIPSI loadings correlate with banks' holdings of GIPSI bonds; and, the negative German loading with banks' short-term debt exposures. Consistent with moral hazard in the form of risk-taking by large, under-capitalized banks to exploit government guarantees, arbitrage regulatory risk weights, and access central-bank funding, we find that this carry-trade behavior is stronger for large banks, and banks with low Tier 1 ratios and high risk-weighted assets, in both GIPSI and non-GIPSI countries' banks, but not so for similar banks in other Western economies or for non-bank firms