End of the sovereign-bank doom loop in the European Union? The bank recovery and resolution directive

Giovanni Covi and Ulrich Eydam

No 468, Kiel Advanced Studies Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: In this paper we examine the relationship between the default risk of banks and sovereigns, i.e. the 'doom-loop'. Specifically we try to assess the effectiveness of the implementation of the new recovery and resolution framework. We use a panel with daily data on European banks and sovereigns ranging from 2008 to 2016. We find that there was a pronounced feedback loop between banks and sovereigns from 2008 to 2014. However, this feedback loop seems to have disappeared after the implementation of the new regulatory framework. This finding is robust across several specifications.

Keywords: Financial Stability; Sovereign Bailout; Doom Loop; Bank Recovery and Resolution Directive; European Banking Union (search for similar items in EconPapers)
JEL-codes: E58 G01 G18 L51 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-eec, nep-mac and nep-net
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: End of the sovereign-bank doom loop in the European Union? The Bank Recovery and Resolution Directive (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwasw:468

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