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Sovereign Debt Crises

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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.).
  • Handle: RePEc:fip:fedgif:1104
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    References listed on IDEAS

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    Cited by:

    1. Igor V. Belyakov, 2017. "Monitoring and Analysis of Contingent Budget Liabilities to Financial System," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 127006, Russia, issue 4, pages 71-84, August.
    2. Philippe Muller & Jérôme Bourque, 2017. "Methodology for Assigning Credit Ratings to Sovereigns," Discussion Papers 17-7, Bank of Canada.
    3. Grant, Everett, 2016. "Exposure to international crises: trade vs. financial contagion," ESRB Working Paper Series 30, European Systemic Risk Board.
    4. M. Ayhan Kose & Peter S. O. Nagle & Franziska Ohnsorge & Naotaka Sugawara, 2020. "Can This Time Be Different? Policy Options in Times of Rising Debt," Koç University-TUSIAD Economic Research Forum Working Papers 2008, Koc University-TUSIAD Economic Research Forum.
    5. 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.
    6. Filippo De Marco, 2017. "Bank Lending and the European Sovereign Debt Crisis," Working Papers 213, Oesterreichische Nationalbank (Austrian Central Bank).
    7. 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.
    8. Chronopoulos, Dimitris K. & Sobiech, Anna L. & Wilson, John O.S., 2019. "The Australian bank levy: Do shareholders pay?," Finance Research Letters, Elsevier, vol. 28(C), pages 412-415.

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    More about this item

    Keywords

    Sovereign default; banking crises; government guarantees; financial safety net; bank regulation;
    All these keywords.

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