Italian Sovereign Spreads: Their Determinants and Pass-through to Bank Funding Costs and Lending Conditions

Edda Zoli

No 2013/084, IMF Working Papers from International Monetary Fund

Abstract: Volatility in Italian sovereign spreads has increased since mid-2011. This paper finds that news on the euro area debt crisis and country specific events were important drivers of sovereign spreads. Movements in sovereign spreads affect CDS spreads and bond yields of Italian banks, and are transmitted rapidly to firm lending rates. Banks with lower capital ratios and higher nonperforming loans were found to be more sensitive to swings in sovereign spreads. Credit supply constraints due to bank funding shortages from the sovereign debt crisis were a major factor behind the lending slowdown in late 2011, while in 2012 weak demand appears to have been driving changes in credit more than supply.

Keywords: WP; bank; CDS; BNP Paribas; Commerzbank; lending; Italian sovereign spreads; bank funding costs; lending conditions; comparison group; funding cost; banks' CD; bank capital; bank risk; government bond bond yield; CDS premium; loan supply and demand; banks CD; CDS spread; access to funding; Yield curve; Credit default swap; Sovereign bonds; Bond yields; Credit; Global (search for similar items in EconPapers)
Pages: 26
Date: 2013-04-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

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