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 |
| Date of revision: | |
| Handle: | RePEc:een:camaaa:2013-43 |
| Contact details of provider: | Postal: Phone: +61 2 6125 4705 Fax: +61 2 6125 5448 Web page: http://cama.crawford.anu.edu.auEmail: More information through EDIRC
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References listed on IDEAS
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- Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
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- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002.
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Elsevier, vol. 26(5), pages 825-855, May.
- Glenn Hoggarth & Ricardo Reis & Victoria Saporta, 2001. "Costs of banking system instability: some empirical evidence," Bank of England working papers 144, Bank of England.
- Andreas A. Jobst & Dale F. Gray, 2013. "Systemic Contingent Claims Analysis; Estimating Market-Implied Systemic Risk," IMF Working Papers 13/54, International Monetary Fund.
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