Policy uncertainty, interest rate environment and the dynamic correlation between sovereign and bank default risk

Bales, Stephan; Burghof, Hans‐Peter

doi:10.1016/j.econlet.2021.109983

Cited by 12 publications

(11 citation statements)

References 8 publications

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“…Another finding is the Asian market showed a delayed but significant negative reaction in the days following the event. More analyses of the SVB collapse to traditional (macro-)economics and finances refer to [11][12][13][14][15][16][17].…”

Section: Methodology 21 Pilot Studymentioning

confidence: 99%

Cryptocurrency in the Aftermath: Unveiling the Impact of the SVB Collapse

Wang,

Yu,

Chen

2023

Preprint

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<p>In this paper, we explore the aftermath of the Silicon Valley Bank (SVB) collapse, with a particular focus on its impact on crypto markets. We conduct a multi-dimensional investigation, which includes a factual summary, analysis of user sentiment, and examination of market performance. Based on such efforts, we uncover a somewhat counterintuitive finding: \textit{the SVB collapse did not lead to the destruction of cryptocurrencies; instead, they displayed resilience.} </p>

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Section: Methodology 21 Pilot Studymentioning

confidence: 99%

Cryptocurrency in the Aftermath: Unveiling the Impact of the SVB Collapse

Wang,

Yu,

Chen

2023

Preprint

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“…In order to assess the impact of the BRRD on the bank-sovereign nexus, we want to isolate the structural or secular component of the correlation because this should reflect fundamental changes in the interconnectedness between banks and sovereigns. Bales & Burghof (2021) use the DCC-GARCH model of Engle (2002) on a principal component of bank and sovereign CDS spread changes, but that approach implicitly assumes a constant long-run component.…”

Section: Methodsmentioning

confidence: 99%

“…Daily CDS spreads are retrieved from IHS Markit for the period 2008-2020 for the banks listed in Table 1. To obtain a single measure capturing bank risk within a country we perform a factor analysis on the bank CDS spreads, similar to Bales & Burghof (2021). The first factor can be interpreted as the common driver of bank CDS spreads within each country which we henceforth call the bank index.…”

Section: Datamentioning

confidence: 99%

“…To test the credibility of the BRRD, it is crucial to assess whether or not the BRRD has diminished the structural long-run interconnectedness between banks and their sovereigns. To overcome the limitations of the banksovereign correlation DCC-GARCH of Bales & Burghof (2021), where short-run deviations in the bank-sovereign correlation revolve around a constant long-run mean, we adopt a DCC-MIDAS approach. This allows the disentanglement of short-run fluctuations in the bank-sovereign correlation from a long-run secular component.…”

Section: Introductionmentioning

confidence: 99%

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BRRD credibility and the bank-sovereign nexus

Lamers

Present

Vennet

et al. 2022

Applied Economics Letters

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We investigate the effectiveness of the Bank Recovery and Resolution Directive (BRRD) in mitigating the bank-sovereign nexus in the Euro Area. Using CDS spreads to measure bank and sovereign credit risk and a DCC-MIDAS model to capture the long-term component of bank-sovereign interconnectedness, we document that the dynamic correlation between banks and sovereigns has decreased in Euro Area countries since the introduction of the BRRD. Panel data analysis reveals that the decline in interconnectedness is not driven by the banks' capital adequacy, size or holdings of domestic sovereign securities.

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“…and their effects on sovereign default (Van Rijckeghem and Weder, 2004;Kohlscheen, 2006;Moser, 2007). 1 Moreover, recent studies also examine the impact of country-level economic policy uncertainty on sovereign default risk (Wisniewski and Lambe, 2015;Bales and Burghof, 2021). However, the impact of firm-level political risk on corporate default received little attention creating a lacuna in the corporate finance literature.…”

Section: Introductionmentioning

confidence: 99%