Bank- sovereign nexus should be mediated by citizens activism PDF Stampa E-mail
Scritto da Angelo L.   
Martedì 08 Aprile 2014 11:01

«Sovereign debtors and their national banking systems are closely linked through a range of direct and indirect channels. […] Because of these close interlinkages, problems arising in the banking sector can trigger downward spirals in which increased sovereign risk, banking system difficulties, and the deteriorating economic situation spill over and feed on each other.

[…] in normal (non crisis) times banks have no incentive to load up on government paper, regardless of the favorable regulatory treatment. The heavy purchases of domestic sovereign paper were concentrated in the crisis period; banks began to sell sovereign paper as soon as the economic situation began to normalize. Overall, this evidence is consistent with the view that the increase in banks’ holdings of government bonds has been mainly a consequence – rather than a cause – of the crisis, and must be interpreted in the light of the process of fragmentation of euro-area financial markets during the crisis, largely driven by redenomination risk. […] Data for all the main euro area countries show that banks are about as correlated with sovereigns as are non-financial issuers. […] The above considerations do not imply that loosening the banks-sovereign nexus is undesirable. Indeed, there is no doubt that achieving this objective would improve financial stability.[…] In our view, effective policies to address the risks of adverse sovereign-bank feedback loops must be targeted to two objectives: sound public finances and a stable banking system. Fiscal. […] For the Eurozone, the Banking Union project is an essential part of the solution.» (Angelini, Grande, How to loosen the banks-sovereign nexus, 8 April 2014,

In this article the authors argues that the nexus between sovereign debt and national banking system can be representative of the presence of a financial crisis. It is a matter of fact that a central banking systems issuing a sovereign currency are connected with the government ( or a coordination of government in the case of monetary union).

The interlinkage between sovereign debtors and national banking system is a fundamental asset in the process of institutional civilization. It is a matter of fact that the development of political human consortium has created a division between monetary policy under the supervision of central banks, and fiscal policy under the supervision of governments. Even if the divorce between monetary policy and fiscal policy is considered one of the fundamental improvements in the process of institutionalization in the western civilization, a nexus between them still exists. The nexus recalls the centrality of citizenship and democratic process in political economy. Through the nexus between fiscal policy and monetary policy central banks are “obliged” to participate to political debate on fundamental topics such as public finance sustainability, austerity, and political representativeness. But at the same time this relation can be negative for the citizenship interests’ representativeness due to the fact that central banks can guide the fiscal policy acquiring governments bonds. Policy makers can have some sort of political obligation in discussing fiscal policy with central banks. This can create some kind of distortions orienting the fiscal policy in the sense of bank interests.

The sovereign-central banks nexus characterizes the constitutional political economy in contemporary economies. This nexus can be positive or negative. When the economy is oriented in a growth path the level of bonds in banking balance sheets is lower than in time of crisis. This is due to the fact that in the case of recession or a financial crisis the state must implement some kind of political economy to restore the real economy. In this case the level of public debts increase and governments ask to banks to acquire bonds. In the case of economic growth banks should sell bonds reducing the intensity of sovereign-bank nexus. In this sense the proposition: «[...] the increase in banks’ holdings of government bonds has been mainly a consequence – rather than a cause – of the crisis» can be considered as a mailstone of the sovereign- bank nexus. In effect we can say that the great financial crisis has been created in the financial markets especially in consideration of the relations between the real estate markets and the banking sector. It is a matter of fact that the great financial crisis has been created outside the sovereign-bank nexus. The problem is not in the relation among sovereign and banks but in the relation between financial markets and banks. Banks offering credit to financial markets increase the level of systemic risks, improving speculative assets. This can induce to a financial crisis as in the case of the Great Financial Crisis in 2007. Banks are like two-front Giano. On the one hand banks finance speculative assets in financial markets creating systemic risks, on the other hand banks acquire public bonds once the financial crisis has been materialized in the real economy. In the first stage banks have high revenues due to the fact that the process of investing in speculative assets can generate high revenues. In the second stage banks restore their balance sheets with the higher interest rates paid by public bonds. In the first stage the level of revenue is higher for banks, in the second stage banks restore losses paid in the turmoil of the crisis improving their operability.

This means that banks still play an intermediary role either in producing financial crisis either in the resolving process of a financial crisis.

But we could ask: what is the main interest in modern economic systems ? Is the main interest that of banks, of governments, or that of people ?

The sovereign-banks nexus is able to guide the economy towards an increase in the per capita income, reducing income inequality ?

Even if the sovereign-banks nexus is fundamental for the development of contemporary economic systems, we can ask if a deeper citizenships’ activism can produce a more sustainable financial system. If bonds are acquired by citizenships traded in retail markets, the level of “democratization” could increase. Citizenships should acquire bonds and reducing in this sense the intensity of the sovereign-banks nexus. Even if organizations are important in contemporary economic systems, the structural foundation of society based on individualism. Individualism let us infer that a reduction of the sovereign-bank nexus should be mediated by an increasing role of individuals in acquiring bonds and in having a greater role in orienting the economy.

The organizational framework is important in explaining the elements and the role of the sovereign-banks nexus, but at the same time a solution of the problem can be founded considering the importance of individual choices and motivations in acquiring assets and bonds. A micro-foundation of the organizational economics could shed lights on undiscovered lands.


Ultimo aggiornamento Martedì 08 Aprile 2014 11:02
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