The Robustness of the Sovereign-Bank Interconnection: Evidence from Contingent Claims Analysis

Gómez‐Puig, Marta; Singh, Manish K.; Sosvilla‐Rivero, Simón

doi:10.2139/ssrn.3131426

Cited by 1 publication

(1 citation statement)

References 63 publications

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“…(Note 2) A destabilizing impact -running from bank exposure to sovereign default risk -characterizes Spain, Italy and Portugal, especially during phases of financial turmoil, whereas a stabilizing effect characterizes the EMU core countries. Gomez-Puig et al (2018), using three different interconnection measures, find evidence of bidirectional linkages between country-level banking and sovereign risk indicators for Spain and Italy during the European debt crisis. Similarly, Buchholz and Tonzer (2016), study the EU sovereign credit risks interconnections and find that the correlation/contagion structure varies across time and countries, requiring therefore a dynamic approach.…”

Section: Introductionmentioning

confidence: 95%

Sovereign - Bank Default Risk Linkages During the Greek Financial Crisis and the Role of the Italian Debt

Cifarelli

Paladino

2018

ijafr

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The Greek crisis has brought to light the strong nexus between the credit risks of European banks and their sovereign. We study this phenomenon in Germany, France, Italy and Spain by estimating the conditional correlations between sovereign and bank CDS bond spreads over the period 2006-2015. Trivariate time-varying regime switching correlation analyses, such as the STCC-GARCH and DSTCC-GARCH, are implemented to associate causally the state shifts to the dynamics of the so-called “transition variables”. We find evidence of significant changes in the correlation structures due to the evolution of both the Greek and Italian crises.

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Section: Introductionmentioning

confidence: 95%