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Sovereign Debt Crises

Author

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  • Ricardo Correa
  • Horacio Sapriza

Abstract

Sovereign debt crises have been recurrent events over the past two centuries. In recent years, the timing of sovereign crises has coincided or has directly followed banking crises. The link between sovereigns and banks tightened as the contingent liability that the banking sector represents for the sovereign grew, as financial \\"safety nets\\" became more common. This chapter analyzes the transmission channels between sovereigns and banks, with a focus on the effect of sovereign distress on bank solvency and financing. It then highlights the notable cost to the real economy of the close connection between sovereigns and banks. Breaking the \\"feedback loop\\" between these two sectors should be an important policy priority.

Suggested Citation

  • Ricardo Correa & Horacio Sapriza, 2014. "Sovereign Debt Crises," International Finance Discussion Papers 1104, Board of Governors of the Federal Reserve System (U.S.), revised 21 May 2014.
  • Handle: RePEc:fip:fedgif:1104
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    References listed on IDEAS

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    Cited by:

    1. Philippe Muller & Jérôme Bourque, 2017. "Methodology for Assigning Credit Ratings to Sovereigns," Discussion Papers 17-7, Bank of Canada.
    2. Annika Westphal, 2015. "Systemic Risk in the European Union: A Network Approach to Banks’ Sovereign Debt Exposures," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 3(3), pages 1-36, July.
    3. Filippo De Marco, 2017. "Bank Lending and the European Sovereign Debt Crisis," Working Papers 213, Oesterreichische Nationalbank (Austrian Central Bank).
    4. Degl'Innocenti, Marta & Kourtzidis, Stavros A. & Sevic, Zeljko & Tzeremes, Nickolaos G., 2017. "Investigating bank efficiency in transition economies: A window-based weight assurance region approach," Economic Modelling, Elsevier, vol. 67(C), pages 23-33.

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    Keywords

    financial safety net; banking crises; bank regulation; government guarantees; Sovereign default;

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