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Does sovereign risk impact banking risk in the Eurozone? Evidence from the COVID-19 pandemic

Carmen González-Velasco, Marcos García-López and Marcos González-Fernández

Finance Research Letters, 2022, vol. 47, issue PA

Abstract: This paper studies the impact of sovereign risk on Eurozone banking risk during a novel crisis such as the COVID-19 pandemic. Spillover effects on volatility are identified using Granger causality tests, a spillover matrix, and BEKK-GARCH models. The results confirm that an increase in Eurozone sovereign risk has impacted banking risk in Eurozone and that there is no evidence that sovereign risk in the countries of the Eurozone periphery is being transmitted to banking risk in the core countries during the crisis. These conclusions are very important for risk management and the design and monitoring of Eurozone financial policies.

Keywords: Banking risk; Sovereign risk; COVID-19; VARX models; BEKK-GARCH models (search for similar items in EconPapers)
JEL-codes: C58 G01 G15 G18 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:47:y:2022:i:pa:s1544612321005808

DOI: 10.1016/j.frl.2021.102670

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