Contingent Liabilities and Sovereign Risk: Evidence from Banking Sectors
AbstractThis paper proposes a simple method to estimate contingent liabilities that arise from (implicit and explicit) government guarantees to the banking sector. This method allows us to construct cross-country estimates on potential costs of bank failures. Furthermore, we empirically test whether the contingent liabilities from the banking sector is a significant determinant of sovereign risk based on the data from 32 countries. Our results suggest that a 1% of GDP increase in contingent liabilities is associated with an increase in sovereign CDS spreads of 24 basis points in advanced countries and 75 basis points in emerging economies
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Bibliographic InfoPaper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-43.
Length: 52 pages
Date of creation: Jul 2013
Date of revision:
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More information through EDIRC
Contingent Liabilities; Sovereign Risk; Banking Sector;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-28 (All new papers)
- NEP-CBA-2013-07-28 (Central Banking)
- NEP-EEC-2013-07-28 (European Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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