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Bank bailouts and bank-sovereign risk contagion channels

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  • Stângă, Irina M.

Abstract

Bank bailouts generate risk spillovers between the default risks of banks and governments. This paper quantifies the effects of bank bailouts and measures the interdependence risk between the banking sector and government for the US and six European countries. The approach allows to distinguish two channels of contagion by identifying bailout and sovereign risk shocks and assessing their effects on the default risks of banks and governments. In contrast to Europe, a bailout shock generates a persistent decrease in the default risk of the US banking sector. The bank-sovereign risk contagion is stronger in Europe relative to the US.

Suggested Citation

  • Stângă, Irina M., 2014. "Bank bailouts and bank-sovereign risk contagion channels," Journal of International Money and Finance, Elsevier, vol. 48(PA), pages 17-40.
    • Handle: RePEc:eee:jimfin:v:48:y:2014:i:pa:p:17-40
    DOI: 10.1016/j.jimonfin.2014.07.005
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    Cited by:

    1. Faia, Ester, 2016. "Sovereign Risk, Bank Funding and Investors’ Pessimism," CEPR Discussion Papers 11340, C.E.P.R. Discussion Papers.
    2. Faia, Ester, 2017. "Sovereign risk, bank funding and investors’ pessimism," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 79-96.
    3. Emanuele Bacchiocchi & Catalin Dragomirescu-Gaina, 2021. "Uncertainty spill-overs: when policy and financial realms overlap," Papers 2102.06404, arXiv.org.
    4. Timo Bettendorf, 2019. "Spillover effects of credit default risk in the euro area and the effects on the Euro: A GVAR approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 296-312, January.
    5. Cifarelli, Giulio & Paladino, Giovanna, 2020. "A non-linear analysis of the sovereign bank nexus in the EU," The Journal of Economic Asymmetries, Elsevier, vol. 21(C).

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    More about this item

    Keywords

    Bank bailouts; Bank default risk; Sovereign default risk; Contagion; Vector Autoregression; Sign restrictions;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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