Credit Spread Interdependencies of European States and Banks During the Financial Crisis

Alter, Adrian; Schüler, Yves S.

doi:10.2139/ssrn.1843282

Cited by 87 publications

(84 citation statements)

References 28 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…As a consequence, given the significance of the fiscal implications deriving from a bank rescue, the fear of banking crises started to become an important determinant of sovereign spreads. This empirical evidence is also confirmed by Acharya et al () and Alter and Schueler (). They show that sovereign CDS increase before the bailout of banks by governments.…”

Section: Granger Causality In the European Crisessupporting

confidence: 82%

Inside European Financial Instability: Main Causes and Possible Solutions

Bonamini¹,

D’Apice²,

Forte

2014

Economic Notes

View full text Add to dashboard Cite

Since 2010, some European countries have been going through a difficult period of economic and financial fragility. The aim of this paper is to review the main causes of European financial instability. Since the analysis reflects an important interconnection between public debt and banking stability, we empirically investigate this interaction through a Granger causality analysis. Testing the possible existence of Granger causal relationships between sovereign debt and banking stability allows us to identify countries in which a sovereign crisis caused a banking crisis and vice versa. Finally, we describe possible solutions in order to exit from the crisis and the economic policy implications.

show abstract

Section: Granger Causality In the European Crisessupporting

confidence: 82%

Inside European Financial Instability: Main Causes and Possible Solutions

Bonamini¹,

D’Apice²,

Forte

2014

Economic Notes

View full text Add to dashboard Cite

show abstract

“…The first reason is macroeconomic and institutional in nature and relates to systemic risk. Using daily credit default swaps (CDS) for several eurozone countries for the period 2007-10, Alter and Schüler (2012) provide evidence of interdependence between government and bank credit risk during the crisis. Experience of the near failure of cross-border banks in Europe (Fortis and Dexia, for example) shows that in times of crisis national authorities focus on preserving the national parts, while the integrated value of a bank is neglected (Claessens et al, 2010).…”

Section: Introductionmentioning

confidence: 99%

European Deposit Insurance and Resolution in the Banking Union

Gros

Schoenmaker²

2014

J of Common Market Studies

View full text Add to dashboard Cite

Since the European Council of June 2012, ‘banking union’ is a key item for the EU's policy agenda. This contribution outlines the state of the policy debate – identifying the elements that are missing but important from a theoretical viewpoint. Concrete proposals are made as to how the missing elements could be added in the form of a new European Deposit Insurance and Resolution Authority, which would work alongside the ‘single supervisory mechanism’ under which the European Central Bank assumes supervisory powers for the largest eurozone banks. The paper also illustrates how a gradual transition could align incentives and mitigate the political resistance to a full banking union. Finally, new estimates are provided for how much would be needed for a European Deposit Insurance and Resolution Fund.

show abstract

“…In line with Diebold and Yilmaz (), various recent contributions focusing on advanced economies use vector autoregression models to study feedback loops of sovereign and bank risk. Alter and Beyer () and Alter and Schüler () assess these phenomena using daily CDS data for euro‐area countries. Dividing the sample into pre‐ and post‐bailout periods, Alter and Schüler () find that the feedback effects increased following bailouts, as sovereign risks became the main driver of banks’ CDSs.…”

Section: Literature Review: Pass‐through Channels?mentioning

confidence: 99%

“…Alter and Beyer () and Alter and Schüler () assess these phenomena using daily CDS data for euro‐area countries. Dividing the sample into pre‐ and post‐bailout periods, Alter and Schüler () find that the feedback effects increased following bailouts, as sovereign risks became the main driver of banks’ CDSs. Although time series models are useful in understanding the joint dynamics of bank and sovereign CDS spreads, they provide no guidance on the drivers of doom loops.…”

Section: Literature Review: Pass‐through Channels?mentioning

confidence: 99%

Bank and sovereign risk pass‐through: Evidence from the euro area

Erce¹

2019

International Finance

View full text Add to dashboard Cite

Sovereign and bank risk can feed into each other and trigger destabilizing dynamics. In this paper, I use euro‐area countries’ credit default swap data to study what factors and shocks underlie bouts of enhanced correlation between bank and sovereign risk. Sovereign risk pass‐through, where sovereign instability undermines domestic banks’ health, is stronger than bank risk pass‐through, where bank instability taints the sovereign's fiscal outlook. When banks are more exposed to the sovereign or the latter loses its investment‐grade status, sovereign risk transfers to banks particularly strongly. In the other direction, risk transmits to the sovereign from banks more strongly if the banks are larger or if the government is bailing them out. During bailout periods, bank risk pass‐through is more likely if banks hold more domestic sovereign debt, they are more externally indebted, or the sovereign debt stock is higher.

show abstract

Credit Spread Interdependencies of European States and Banks During the Financial Crisis

Abstract: We investigate the interdependence of the default risk of several Eurozone countries (France,

Cited by 87 publications

References 28 publications

Inside European Financial Instability: Main Causes and Possible Solutions

Inside European Financial Instability: Main Causes and Possible Solutions

European Deposit Insurance and Resolution in the Banking Union

Bank and sovereign risk pass‐through: Evidence from the euro area

Contact Info

Product

Resources

About