A new measure for gauging the riskiness of European Banks’ sovereign bond portfolios

Philip Molyneux, Livia Pancotto and Alessio Reghezza ()

Finance Research Letters, 2021, vol. 42, issue C

Abstract: For a sample of 51 European banks, during 2010-2016, we construct a novel measure (SovRisk) which captures the riskiness of sovereign bond portfolios. We demonstrate the ability of this measure to explain the phases of the European sovereign debt crisis while accounting for the substantial differences between distressed and non-distressed countries. We contend that SovRisk can be used as a complement to bank Credit Default Swap (CDS) spreads, or a substitute in the absence of traded CDS, for measuring banks’ sovereign risk.

Keywords: Bank sovereign risk exposure; Sovereign bond portfolios; Sovereign-bank nexus (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317013

DOI: 10.1016/j.frl.2020.101887

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