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Managing the sovereign-bank nexus

Giovanni Dell'Ariccia, Caio Ferreira, Nigel Jenkinson, Luc Laeven (), Alberto Martin, Camelia Minoiu () and Alexander Popov ()

No 2177, Working Paper Series from European Central Bank

Abstract: This paper identifies the various channels that give rise to a “sovereign-bank nexus” whereby the financial health of banks and sovereigns is intertwined. We find that banks and sovereigns are linked by three interacting channels: banks hold large amounts of sovereign debt; banks are protected by government guarantees; and the health of banks and governments affect and is affected by economic activity. Evidence suggests that all three channels are relevant. The paper concludes with a discussion of the policy implications of these findings. JEL Classification: E62, F34, G01, G21

Keywords: financial crisis; financial stability; fiscal policy; sovereign-bank nexus; sovereign risk (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
Date: 2018-09
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