Sovereign debt exposures and banking risks in the current EU financial crisis

Ivo Arnold ()

Journal of Policy Modeling, 2012, vol. 34, issue 6, 906-920

Abstract: This paper explores the relationship between sovereign risk and banking risk during the European sovereign debt crisis in May 2010. We link banks’ stock returns and CDS rates to sovereign CDS rates, to examine the spillover of sovereign risk to the banking system in the EU. More specifically, we use sovereign debt exposures from the EU's July 2010 stress tests to investigate whether heavily exposed banks were hit harder during the May 2010 crisis. The results are mixed. Banks exposed to distressed sovereign debt respond more strongly to changes in sovereign CDS rates. On closer examination, however, this result appears to be driven by banks which are located in countries experiencing sovereign debt problems.

Keywords: Sovereign debt; Credit crisis; Euro area; Banking (search for similar items in EconPapers)
JEL-codes: F34 F36 G21 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0161893812000683
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:jpolmo:v:34:y:2012:i:6:p:906-920

DOI: 10.1016/j.jpolmod.2012.05.016

Access Statistics for this article

Journal of Policy Modeling is currently edited by A. M. Costa

More articles in Journal of Policy Modeling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().