Sovereign and Bank CDS Spreads During the European Debt Crisis: Laying the Foundation for SMEs’ Financial Distress

Danilo V. Mascia (), Paolo Mattana, Stefania P.S. Rossi and Roberto D’Aietti
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Danilo V. Mascia: University of Cagliari
Paolo Mattana: University of Cagliari
Stefania P.S. Rossi: University of Cagliari
Roberto D’Aietti: University of Cagliari

Chapter 6 in Access to Bank Credit and SME Financing, 2017, pp 149-172 from Palgrave Macmillan

Abstract: Abstract Using a sample of 14,910 daily credit default swap (CDS) observations related to 24 banks chartered in seven countries in the Euro area, we assess the existence of a causal relation between sovereign and bank credit risk during 2010–2014. Our results show that CDS spreads of the observed banks are highly influenced by the price dynamics of sovereign CDSs. Our findings support the widespread view in the literature that a worsening market perception of sovereign credit risk has a significant impact on the behaviour of banks. In response to sovereign shocks, banks transfer the stress to borrowers, thus reducing lending and/or increasing the cost of borrowing for enterprises.

Keywords: CDS; Credit risk; Sovereign risk; European sovereign debt crisis; Banks (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-3-319-41363-1_6

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DOI: 10.1007/978-3-319-41363-1_6

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