Bank bailouts and bank-sovereign risk contagion channels

Stanga, Irina

doi:10.1016/j.jimonfin.2014.07.005

Cited by 14 publications

(12 citation statements)

References 15 publications

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“…Our analysis focuses on the latter two shocks, with the primary role of the business cycle shock being to sharpen our identification scheme. These three shocks correspond to those considered by Stângȃ (2014) but in the more general context of a bilateral multivariate model as opposed to the unilateral trivariate SRVAR models that she considers.…”

Section: The Empirical Frameworkmentioning

confidence: 67%

“…As the financial sector becomes riskier, the likelihood that further sovereign intervention in the financial sector will be required rises, causing a further escalation of sovereign risk and giving rise to a feedback loop. Stângȃ (2014) shows that these stylised facts form a basis for sign-identification of financial sector bailout shocks and sovereign risk shocks. Stângȃ estimates a set of country-specific trivariate sign-restricted vector autoregressive (SRVAR) models in the sovereign CDS spread, the financial sector CDS spread and the sovereign term spread and identifies three fundamental shocks: an expansionary business cycle shock, an adverse sovereign risk shock and a financial sector bailout shock.…”

Section: Introductionmentioning

confidence: 98%

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On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks^*

Greenwood‐Nimmo

Nguyen

2021

Economic Record

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We use sign-identified macroeconomic models to study the interaction of financial sector and sovereign credit risks in Europe. We find that countryspecific financial sector bailout shocks do not generate strong international spillovers, because they primarily transfer private sector risk onto the local sovereign. By contrast, sovereign risk shocks generate substantial spillovers onto the global financial sector and for international sovereign debt markets. We conclude that any financial sector bailout policy that undermines the creditworthiness of the affected sovereign is likely to exacerbate global credit risk. Our findings highlight the unintended global consequences of country-specific financial sector bailout programmes.

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Section: The Empirical Frameworkmentioning

confidence: 67%

Section: Introductionmentioning

confidence: 98%

On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks^*

Greenwood‐Nimmo

Nguyen

2021

Economic Record

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“…Acharya, Drechsler and Schnabl (2013) also demonstrated the link between the bank and sovereign risk, arguing that financial sector bailouts contributed to the outbreak of the crisis and the increase of sovereign risk. Stânga (2014) also found a connection between banking bailouts and sovereign risk in European countries.…”

Section: Risk Aversion Vs Banking Contagion: Impact On Sovereign Yieldsmentioning

confidence: 85%

Animal Spirits vs Contagion: Which One is the Main Driver of Sovereign Yields in Europe?

Ferreira¹,

Nunes

Tavares

2016

SSRN Journal

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The objective of this paper is to assess the differences between contagion and investors' risk aversion in terms of their impact on European sovereign bond yields during the financial crisis. This paper evaluates contagion at banking level, as it has the advantage of capturing the exposure of sovereign debt markets to financial sector's risk and also the contagion between sovereign spreads that occurs through the financial sector channel. The paper analyzes the period from 2008 to 2012 and also the Greek, Portuguese and Spanish bailout periods. The results indicate that the main driver of yields in Europe is risk aversion and not contagion. The main differences between Central and Southern European countries' yields are explained by risk aversion. This channel has a much stronger impact on the periphery. On the other hand, contagion exerts a similar influence throughout all European countries.2

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“…Interest in bank CDS has increased markedly since the global financial crisis. Stânga (2014) and Avino and Cotter (2014) examine the relationship between bank and sovereign CDS spreads from the onset of the global financial crisis. Analyzing the potential for market discipline in the CDS market, Völz and Wedow (2011) (2012) determine that equity markets provide a stronger signal of impending problems than debt or CDS markets.…”

Section: Related Literaturementioning

confidence: 99%

Credit default swaps as indicators of bank financial distress

Avino

Conlon

Cotter

2019

Journal of International Money and Finance

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We examine whether CDS contracts written on individual banks are effective leading indicators of bank financial distress during a period of systemic bank crisis. Changes in CDS spreads are found to yield a robust signal of failure across a set of European and US banks, in keeping with indirect market discipline. Furthermore, changes in CDS spreads provide information about the condition of banks which supplements that available from equity markets and contained in accounting metrics. Consistent results are detailed for both senior and subordinated CDS spreads. Our results hold out-of-sample, for logit and proportional hazards models, for various cohorts, for idiosyncratic changes in CDS and are robust to the use of alternative measures of bank distress, including rating downgrades and accounting risk.

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Bank bailouts and bank-sovereign risk contagion channels

Cited by 14 publications

References 15 publications

On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks^*

On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks^*

Animal Spirits vs Contagion: Which One is the Main Driver of Sovereign Yields in Europe?

Credit default swaps as indicators of bank financial distress

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Bank bailouts and bank-sovereign risk contagion channels

Cited by 14 publications

References 15 publications

On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks*

On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks*

Animal Spirits vs Contagion: Which One is the Main Driver of Sovereign Yields in Europe?

Credit default swaps as indicators of bank financial distress

Contact Info

Product

Resources

About

On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks^*

On the International Spillover Effects of Country‐Specific Financial Sector Bailouts and Sovereign Risk Shocks^*