The impact of sovereign credit risk on bank funding conditions
Bank for International Settlements
Authors registered in the RePEc Author Service: Andrea Zaghini ()
No 43 in CGFS Papers from Bank for International Settlements
Sovereign credit risk is currently a significant issue for European banks and over coming years may have implications for global financial stability. This report examines the relationship between sovereign credit risk and bank funding conditions, how banks might respond to an environment of ongoing elevated sovereign risk and the implications for policy makers. It was prepared by a Study Group chaired by Fabio Panetta from the Bank of Italy. The report concludes that increases in sovereign credit risk push up the cost and weaken the composition of banks' funding, and that banks cannot fully insulate themselves by adjusting their operations. As a consequence, the official sector has a key role in minimising the impact of weaker public finance conditions on banks, but there are trade-offs. First and foremost, governments need to maintain sound public finance conditions. Bank supervisors should also closely monitor the interaction of sovereign risk with regulatory policies that encourage banks to hold large quantities of public debt. Central banks might also consider having flexible collateral frameworks that, during severe crises, allow funding to be supplied against a broad range of collateral, but this is not costless, and hence should be used sparingly and with appropriate safeguards in place.
Date: 2011 Written 2011-07
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
http://www.bis.org/publ/cgfs43.pdf Full PDF document (application/pdf)
Working Paper: The impact of sovereign credit risk on bank funding conditions (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:bis:biscgf:43
Access Statistics for this book
More books in CGFS Papers from Bank for International Settlements Contact information at EDIRC.
Series data maintained by Christian Beslmeisl ().