Does the European Financial Stability Facility bail out sovereigns or banks? An event study

Harry Huizinga and Horváth, Bálint
Authors registered in the RePEc Author Service: Balint Horvath

No 8661, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility as a response to the sovereign debt crisis. This paper investigates the impact of this announcement on bank share prices, bank CDS spreads and sovereign CDS spreads. The main private beneficiaries were bank creditors, especially of banks heavily exposed to southern Europe and Ireland and located in countries characterized by weak public finances. Furthermore, countries with weak public finances and banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value.

Keywords: Bailout; Banking; Cds spreads; Sovereign debt (search for similar items in EconPapers)
JEL-codes: G21 G28 H63 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-ban, nep-cba and nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Does the European Financial Stability Facility Bail Out Sovereigns or Banks? An Event Study (2015)
Working Paper: Does the European Financial Stability Facility bail out Sovereigns or Banks? An Event Study (2011)
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