The break-down can be reconstructed for long-term government bonds issued by the UK central government, looking at the UK’s sector financial accounts. To isolate the Bank of England we relied on data on the bank’s holding of sterling securities issued by the public sector, provided by the Bank of England itself. For some years, MFIs’ [Monetary Financial Institutions] holdings of securities are recorded with a negative sign. This is the result of the accounting practice chosen, as holdings of gilts are reported net of long and short positions.
These observations raise a question about the effectiveness of ECB provision of liquidity to banks as a means to alleviate the sovereign crisis. At a point when government bonds are considered risky assets, euro-area banks are faced with both balance sheet and reputational risks compared to their non-euro area counterparts, and may prove reluctant to increase this exposure further.
Read the article online here: FT Alphaville » Charting sovereign bond holdings across the eurozone