Impacts of the sovereign risk perception on financial stability: Evidence from Brazil

Gabriel Montes, Matheus Valladares and Claudio de Moraes ()

The Quarterly Review of Economics and Finance, 2021, vol. 81, issue C, 358-369

Abstract: Credit Rating Agencies (CRAs) provide credit information related to sovereign bonds and play a crucial role in international financial markets. This study investigates whether CRAs sovereign credit news such as rating changes, outlook, and credit watch status affects Brazil’s financial stability as represented by credit risk and solvency risk of Brazilian banks. Using a panel with a sample of 125 banks, the results reveal that the sovereign credit news alters credit risk coverage (credit provisions) and solvency risk (capital buffer) secured by Brazilian banks. The improvement of Brazilian sovereign risk leads banks to reduce their protections against credit risk (credit provisions) and capital level, which can threaten financial stability.

Keywords: Financial stability; Credit risk; Capital buffer; Sovereign credit rating; Sovereign risk (search for similar items in EconPapers)
JEL-codes: E44 E52 G24 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062976921001101
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:81:y:2021:i:c:p:358-369

DOI: 10.1016/j.qref.2021.06.010

Access Statistics for this article

The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().