Bank-sovereign ties against interbank market integration: the case of the Italian segment

Susanna Saroyan and Lilit Popoyan

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: This paper investigates interbank market fragmentation that results from the bank-sovereign risk nexus. We focus on the Italian market fragmentation during the post-Lehman and sovereign debt crisis era. By using Italian bank and GIPSI country CDS spread changes, we suggest a new measure of sovereign/bank spillovers, based on partial correlations. Then, we examine the relationship between the sovereign-to-banks contagion risk variable and market fragmentation in rate on the e-MID interbank market data. We nd that the bank{sovereign nexus is a signicant source of fragmentation during the most acute phase of the sovereign debt crisis. Our ndings suggest that even if the home country/bank ties impact interbank market integration seriously, the risk from other distressed countries is not negligible.

Keywords: Money market fragmentation; sovereign risk; sovereign{bank spillover, contagion, bank regulation (search for similar items in EconPapers)
Date: 2017-09-01
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Persistent link: https://EconPapers.repec.org/RePEc:ssa:lemwps:2017/02

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