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Sovereign Default and Domestic Banking

Author

Listed:
  • Igor Livshits

    () (Department of Economics)

Abstract

Several recent defaults on sovereign debt were accompanied by major banking crises in the defaulting countries. I argue that the banking crises, triggered by the defaults, were due to inadequate prudential regulations, which did not recognize the riskiness of the government debt. I use a simple model of prudential regulation to illustrate this point. I further investigate whether these “inadequate regulations†can be part of a constrained optimal arrangement which increases the cost of default and permits the government to borrow more ex-ante

Suggested Citation

  • Igor Livshits, 2006. "Sovereign Default and Domestic Banking," 2006 Meeting Papers 453, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:453
    as

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    More about this item

    Keywords

    Sovereign default; banking; prudential regulation;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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