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A new measure for gauging the riskiness of European Banks’ sovereign bond portfolios

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  • Molyneux, Philip
  • Pancotto, Livia
  • Reghezza, Alessio

Abstract

For a sample of 51 European banks, during 2010-2016, we construct a novel measure (SovRisk) which captures the riskiness of sovereign bond portfolios. We demonstrate the ability of this measure to explain the phases of the European sovereign debt crisis while accounting for the substantial differences between distressed and non-distressed countries. We contend that SovRisk can be used as a complement to bank Credit Default Swap (CDS) spreads, or a substitute in the absence of traded CDS, for measuring banks’ sovereign risk.

Suggested Citation

  • Molyneux, Philip & Pancotto, Livia & Reghezza, Alessio, 2021. "A new measure for gauging the riskiness of European Banks’ sovereign bond portfolios," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317013
    DOI: 10.1016/j.frl.2020.101887
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    Cited by:

    1. António Afonso & José Alves & Sofia Monteiro, 2023. "Banks’ Portfolio of Government Debt and Sovereign Risk," CESifo Working Paper Series 10692, CESifo.

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    More about this item

    Keywords

    Bank sovereign risk exposure; Sovereign bond portfolios; Sovereign-bank nexus;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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