Sovereign Debt Crises

Ricardo Correa and Horacio Sapriza

No 1104, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Sovereign debt crises have been recurrent events over the past two centuries. In recent years, the timing of sovereign crises has coincided or has directly followed banking crises. The link between sovereigns and banks tightened as the contingent liability that the banking sector represents for the sovereign grew, as financial \"safety nets\" became more common. This chapter analyzes the transmission channels between sovereigns and banks, with a focus on the effect of sovereign distress on bank solvency and financing. It then highlights the notable cost to the real economy of the close connection between sovereigns and banks. Breaking the \"feedback loop\" between these two sectors should be an important policy priority.

Keywords: Sovereign default; banking crises; government guarantees; financial safety net; bank regulation (search for similar items in EconPapers)
Pages: 36 pages
Date: 2014-05-21
New Economics Papers: this item is included in nep-cba, nep-fmk and nep-reg
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:1104

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