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Bank Exposures and Sovereign Stress Transmission

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Listed author(s):
  • Altavilla, Carlo
  • Pagano, Marco
  • Simonelli, Saverio

Abstract

Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the determinants of changes in banks’ sovereign exposures and their effects during and after the crisis. First, public, bailed out and poorly capitalized banks responded to sovereign stress by purchasing domestic public debt more than other banks, with public banks’ purchases growing especially in coincidence with the largest ECB liquidity injections. Second, bank exposures significantly amplified the transmission of risk from the sovereign and its impact on lending. This amplification of the impact on lending does not appear to arise from spurious correlation or reverse causality.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 11269.

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Date of creation: May 2016
Handle: RePEc:cpr:ceprdp:11269
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Keywords: bank lending; credit risk; crisis; euro; sovereign exposures; sovereign risk;

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Find related papers by JEL classification:
  • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
  • F3 - International Economics - - International Finance
  • G01 - Financial Economics - - General - - - Financial Crises
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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  1. Harald Uhlig, 2014. "Sovereign Default Risk and Banks in a Monetary Union," German Economic Review, Verein für Socialpolitik, vol. 15(1), pages 23-41, 02.
  2. Michael W. Klein & Joe Peek & Eric S. Rosengren, 2002. "Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit," American Economic Review, American Economic Association, vol. 92(3), pages 664-682, June.
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  4. Matteo Crosignani & Miguel Faria-e-Castro & Luís Fonseca, 2016. "The (unintended?) consequences of the largest liquidity injection ever," ESRB Working Paper Series 31, European Systemic Risk Board.
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  9. Russell Cooper & Kalin Nikolov, 2013. "Government Debt and Banking Fragility: The Spreading of Strategic Uncertainty," NBER Working Papers 19278, National Bureau of Economic Research, Inc.
  10. Acharya, Viral V. & Steffen, Sascha, 2015. "The “greatest” carry trade ever? Understanding eurozone bank risks," Journal of Financial Economics, Elsevier, vol. 115(2), pages 215-236.
  11. Gennaioli, Nicola & Martin, Alberto & Rossi, Stefano, 2014. "Banks, Government Bonds, and Default: What do the Data Say?," CEPR Discussion Papers 10044, C.E.P.R. Discussion Papers.
  12. Buch, Claudia M. & Koetter, Michael & Ohls, Jana, 2016. "Banks and sovereign risk: A granular view," Journal of Financial Stability, Elsevier, vol. 25(C), pages 1-15.
  13. Matteo Crosignani, 2015. "Why Are Banks Not Recapitalized During Crises?," Working Papers 203, Oesterreichische Nationalbank (Austrian Central Bank).
  14. Marcello Bofondi & Luisa Carpinelli & Enrico Sette, 2013. "Credit supply during a sovereign debt crisis," Temi di discussione (Economic working papers) 909, Bank of Italy, Economic Research and International Relations Area.
  15. Itamar Drechsler & Thomas Drechsel & David Marques-Ibanez & Philipp Schnabl, 2016. "Who Borrows from the Lender of Last Resort?," Journal of Finance, American Finance Association, vol. 71(5), pages 1933-1974, October.
  16. Alexander Popov & Neeltje van Horen, 2013. "The impact of sovereign debt exposure on bank lending: Evidence from the European debt crisis," DNB Working Papers 382, Netherlands Central Bank, Research Department.
  17. Acharya, Viral V & Eisert, Tim & Eufinger, Christian & Hirsch, Christian, 2014. "Real Effects of the Sovereign Debt Crisis in Europe: Evidence from Syndicated Loans," CEPR Discussion Papers 10108, C.E.P.R. Discussion Papers.
  18. Filippo De Marco & Marco Macchiavelli, 2016. "The Political Origin of Home Bias: The Case of Europe," Finance and Economics Discussion Series 2016-060, Board of Governors of the Federal Reserve System (U.S.).
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Cited by:

  1. Schnabel, Isabel & Schüwer, Ulrich, 2016. "What drives the relationship between bank and sovereign credit risk?," Working Papers 07/2016, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
  2. R. S.J. Koijen & F. Koulischer & B. Nguyen & M. Yogo, 2016. "Quantitative Easing in the Euro Area: The Dynamics of Risk Exposures and the Impact on Asset Prices," Working papers 601, Banque de France.
  3. Janda, Karel & Kravtsov, Oleg, 2017. "Time-varying Effects of Public Debt on the Financial and Banking Development in the Central and Eastern Europe," MPRA Paper 77325, University Library of Munich, Germany.
  4. Carlo Altavilla & Fabio Canova & Matteo Ciccarelli, 2016. "Mending the broken link: heterogeneous bank lending and monetary policy pass-through," Working Papers No 9/2016, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
  5. Martijn Boermans & Robert Vermeulen, 2016. "International investment positions revisited: Investor heterogeneity and individual security characteristics," DNB Working Papers 531, Netherlands Central Bank, Research Department.
  6. Steven Ongena & Alexander Popov & Neeltje Van Horen, 2016. "The invisible hand of the government: "Moral suasion" during the European sovereign debt crisis," DNB Working Papers 505, Netherlands Central Bank, Research Department.
  7. Brunella Bruno & Alexandra D’Onofrio & Immacolata Marino, 2017. "Determinants of Bank Lending in Europe and the US. Evidence from Crisis and Post Crisis Years," CSEF Working Papers 462, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  8. Bruno, Brunella & D'Onofrio, Alexandra & Marino, Immacolata, 2017. "Determinants of bank lending in Europe and the United States: Evidence from crisis and post-crisis years," CEPR Discussion Papers 12002, C.E.P.R. Discussion Papers.
  9. José-Luis Peydró & Andrea Polo & Enrico Sette, 2017. "Monetary policy at work: Security and credit application registers evidence," Working Papers 964, Barcelona Graduate School of Economics.
  10. Ad van Riet, 2017. "Addressing the safety trilemma: a safe sovereign asset for the eurozone," ESRB Working Paper Series 35, European Systemic Risk Board.

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