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Bank-sovereign ties against interbank market integration: the case of the Italian segment

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  • Susanna Saroyan
  • Lilit Popoyan

Abstract

This paper investigates interbank market fragmentation that results from the bank-sovereign risk nexus. We focus on the Italian market fragmentation during the post-Lehman and sovereign debt crisis era. By using Italian bank and GIPSI country CDS spread changes, we suggest a new measure of sovereign/bank spillovers, based on partial correlations. Then, we examine the relationship between the sovereign-to-banks contagion risk variable and market fragmentation in rate on the e-MID interbank market data. We nd that the bank{sovereign nexus is a signicant source of fragmentation during the most acute phase of the sovereign debt crisis. Our ndings suggest that even if the home country/bank ties impact interbank market integration seriously, the risk from other distressed countries is not negligible.

Suggested Citation

  • Susanna Saroyan & Lilit Popoyan, 2017. "Bank-sovereign ties against interbank market integration: the case of the Italian segment," LEM Papers Series 2017/02, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2017/02
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