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Sovereign risk and deposit dynamics:evidence from Europe

David Grigorian () and Vlad Manole

Working Papers Rutgers University, Newark from Department of Economics, Rutgers University, Newark

Abstract: The unprecedented expansion of sovereign balance sheets since the beginning of the global crisis has given a new meaning to the term sovereign risk. Developments in Europe since early 2010 revealed new challenges for the functioning of private banks in an environment of heightened sovereign risk and may have contributed to deleveraging. The paper uses an innovative way of measuring the perception of sovereign risk and its impact. Using an extension of a common market discipline framework, it shows that exposure to sovereign risk may have limited the ability of banks in Europe to collect deposits. Potential identification issues between deposits and bank efficiency are controlled by using Data Envelopment Analysis. The results are robust to inclusion of conventional measures of bank performance and the sector-wide holdings of foreign sovereign debt.

Keywords: Sovereign risk; market discipline; bank deposits; European crisis (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-ban and nep-mac
Date: 2016-03
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Journal Article: Sovereign risk and deposit dynamics: evidence from Europe (2017) Downloads
Working Paper: Sovereign Risk and Deposit Dynamics; Evidence from Europe (2016) Downloads
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