Banks’ portfolio of government debt and sovereign risk: From safe havens to stormy seas

• We analyze domestic, foreign, and central banks holdings of public debt for 31 countries for the period of 1989-2022. • An increase in sovereign risk raises the share of domestic banks’ portfolio of public debt and reduces the percentage holdings in the case of central banks • Better sovereign rations also increase (decrease) the share of commercial (central) banks holdings • the effects of an increment in the risk for domestic investors have increased since the 2010 financial crisis. We analyse domestic, foreign, and central banks holdings of public debt for 31 countries for the period of 1989-2022, applying panel regressions and quantile analysis. We conclude that contrarily to what we observe before 2010, we found that after 2010 an increase in sovereign risk raises the share of domestic banks’ portfolio of public debt and reduces the percentage holdings in the case of central banks. Better sovereign rations also increase (decrease) the share of commercial (central) banks holdings. Furthermore, the effects of an increment in the risk for domestic investors have increased since the 2010 financial crisis. 1 1 We thank the Editor and two anonymous referees for the useful comments. We thank João Santos Silva for clarifications on the Stata quantile procedure. This work was supported by the FCT (Fundação para a Ciência e a Tecnologia) [grant number UIDB/05069/2020]. The opinions expressed herein are those of the authors and do not necessarily reflect those of the authors’ employers. Any remaining errors are the authors’ sole responsibility.