EconPapers    
Economics at your fingertips  
 

On the nexus between sovereign risk and banking crises

Franco Fiordelisi, Claudia Girardone (), Federica Minnucci and Ornella Ricci

Journal of Corporate Finance, 2020, vol. 65, issue C

Abstract: The sovereign debt crisis in the euro area highlighted the close connections between the financial health of banks and sovereigns and was associated with higher funding costs and lower private sector credit. In this study, we analyze the dynamics of the co-movement between sovereign and bank credit default swaps (CDS) spreads in five sub-periods over 2010–2018 and evaluate the effects of the announcement and introduction of the Single Resolution Mechanism (SRM). Our evidence demonstrates that the new bail-in regime, which ensures that troubled banks' private debtholders absorb their losses first, before public money could be used to bail them out, significantly reduced the interconnections between sovereign and banking sector risks.

Keywords: Bail-in; Banking crises; Single Resolution Mechanism; Sovereign-bank nexus; European banking (search for similar items in EconPapers)
JEL-codes: G14 G21 G28 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119920301619
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:corfin:v:65:y:2020:i:c:s0929119920301619

DOI: 10.1016/j.jcorpfin.2020.101717

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Nithya Sathishkumar ().

 
Page updated 2021-04-02
Handle: RePEc:eee:corfin:v:65:y:2020:i:c:s0929119920301619