Contingent Liabilities and Sovereign Risk: Evidence from Banking Sectors
This 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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| Length: | 52 pages |
| Date of creation: | Jul 2013 |
| Handle: | RePEc:een:camaaa:2013-43 |
| Contact details of provider: | Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 2601 Phone: +61 2 6125 4705 Fax: +61 2 6125 5448 Web page: http://cama.crawford.anu.edu.au Email: More information through EDIRC
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References listed on IDEAS
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