Sovereign Default and Domestic Banking
AbstractSeveral recent defaults on sovereign debt were accompanied by major banking crises in the defaulting countries. I argue that the banking crises, triggered by the defaults, were due to inadequate prudential regulations, which did not recognize the riskiness of the government debt. I use a simple model of prudential regulation to illustrate this point. I further investigate whether these â€œinadequate regulationsâ€ can be part of a constrained optimal arrangement which increases the cost of default and permits the government to borrow more ex-ante
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 453.
Date of creation: 03 Dec 2006
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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Sovereign default; banking; prudential regulation;
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- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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