IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Are banks affected by their holdings of government debt?

  • Chiara Angeloni
  • Guntram B. Wolff

The strong relation between sovereign and banking stress is frequently emphasised, especially since the start of the European sovereign debt crisis. This working paper sheds light on the determinants of the link. It studies the stock market performance and the holdings of government debt of the banks stress tested by the European Banking Authority in July and December 2011. A number of results stand out -Banks’ holdings of the sovereign bonds of vulnerable countries generally decreased during the period December 2010 to September 2011. The average stock market performance of each country’s banks was very uneven during 2011. The long-term refinancing operation (LTRO) had no material effect on banks’ stock market values. Greek debt holdings had an effect on banks’ market values in the period July to October 2011 while after October this effect disappeared. Holdings of Italian and Irish debt had a material effect on banks’ market value in the period October to December 2011. Holdings of debt of other periphery countries, in particular Spain, were not an issue. The July PSI deal did not substantially affect the risk resulting from holdings of debt other than Greek debt. The location of banks matters for their market value. This highlights the need to form a banking union in the euroarea.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://bruegel.org/wp-content/uploads/imported/publications/WP_2012_07.pdf
Download Restriction: no

Paper provided by Bruegel in its series Working Papers with number 717.

as
in new window

Length:
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:bre:wpaper:717
Contact details of provider: Postal:
Rue de la Charité, B-1210 Brussels

Phone: +32 2 227 4210
Web page: http://www.bruegel.org
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Silvia Merler & Jean Pisani-Ferry, 2012. "Who's afraid of sovereign bonds?," Policy Contributions 695, Bruegel.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," NBER Working Papers 14656, National Bureau of Economic Research, Inc.
  3. Patrick Bolton & Olivier Jeanne, 2011. "Sovereign Default Risk and Bank Fragility in Financially Integrated Economies," NBER Working Papers 16899, National Bureau of Economic Research, Inc.
  4. Acharya, Viral V & Drechsler, Itamar & Schnabl, Philipp, 2011. "A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk," CEPR Discussion Papers 8679, C.E.P.R. Discussion Papers.
  5. Benedicta Marzinotto & André Sapir & Guntram B. Wolff, 2011. "What kind of fiscal union?," Policy Briefs 646, Bruegel.
  6. Anna Iara & Guntram B. Wolff, 2011. "Rules and risk in the euro area," Working Papers 615, Bruegel.
  7. Alter, Adrian & Schüler, Yves S., 2012. "Credit spread interdependencies of European states and banks during the financial crisis," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3444-3468.
  8. Ejsing, Jacob & Lemke, Wolfgang, 2011. "The Janus-headed salvation: Sovereign and bank credit risk premia during 2008-2009," Economics Letters, Elsevier, vol. 110(1), pages 28-31, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bre:wpaper:717. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruegel)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.