No. 50 - Banks and Purchases of Government Bonds: the Italian Experience from 1890 to Present

The paper studies banks investment in Italian government bonds from 1890 to the present. First, through an extensive statistical reconstruction and in-depth analysis of historical sources, it shows how the economic and institutional environment has influenced the purchases of government securities, analyzing in particular the conditions and structure of the market for public bonds (supply, available financial instruments, yields, riskiness), regulation and moral suasion action by public authorities. Second, using a database of Italian banks' balance sheets from 1890 to the present, an econometric analysis is conducted of the microeconomic determinants of demand for government bonds, such as funding, liquidity, profitability, and default risk. Finally, it is shown how the contribution of these determinants changes during periods of increased sovereign debt riskiness.