BREAKING THE SOVEREIGN-BANK NEXUS: THE ROLE OF EUROPEAN SAFE BONDS

The phenomenon of home bias was analyzed for the first time in 1991 by French and Poterba and refers to the investor's inability to seize the opportunities given by international diversification. In essence, a nation's investors tend to overweight investments in securities from their territory, underestimating the concentration of risk. In this paper, the phenomenon of home bias in the banking sector will be deeply analyzed: in particular, considering the state debt crisis in the weak countries of the EU, it has assumed important and critical dimensions, leading to the creation of a dangerous vicious circle which sees increasingly connected sovereign risk to banking sector risk. The International Monetary Fund also recently expressed its opinion in this regard in the Global Financial Stability Report, pointing out that portfolios of national government securities still represent a large portion of the total assets of the banking sector in numerous countries, in particular Greece, Ireland and Italy, Portugal and Spain; highlighting how the growing exposure to government bonds added to the downgrade of sovereign debt has made the banks of some countries more vulnerable to sovereign shocks, thus highlighting how the problem of risk interconnection between state and bank continues to exist. However, a concrete possible solution to this vicious circle has been proposed, and it is represented by ‘European Safe Bonds’ (ESBies), which have the characteristic of being a safe security, alternative to government bonds and above all, unlike Eurobonds, of not providing for the joint guarantee of the member states of European Union.