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On the importance of indirect banking vulnerabilities in the Eurozone

Author

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  • Bicu Andreea
  • Candelon Bertrand

    (METEOR)

Abstract

This paper investigates banking and sovereign distress in the Eurozone and the importance ofdirect and indirect fi nancial exposures. We use BIS cross-border direct banking flows to linkmember states in a GVAR framework and jointly model sectoral CDS premia. Based on balance sheetpositions of an intermediate debtor country, we calculate indirect exposures and asses how thelevel of interconnectedness is impacted when indirect links are accounted for. We notice a generalslowdown in fi nancial integration and a reduction in cross-border assets in the hope of limitinginternational contagion. By diff erentiating between direct and indirect links, we show that theimpact of reduced weights on core member states is insigni ficant and that deleveraging strategiesare not able to successfully reduce risk.

Suggested Citation

  • Bicu Andreea & Candelon Bertrand, 2012. "On the importance of indirect banking vulnerabilities in the Eurozone," Research Memorandum 033, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  • Handle: RePEc:unm:umamet:2012033
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    References listed on IDEAS

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    Cited by:

    1. Rieth, Malte & Fratzscher, Marcel, 2014. "Monetary policy, bank bailouts and the sovereign-bank risk nexus in the euro area," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100277, Verein für Socialpolitik / German Economic Association.
    2. Beyer, Andreas & Alter, Adrian, 2013. "The dynamics of spillover effects during the European sovereign debt crisis," Working Paper Series 1558, European Central Bank.
    3. Alter, Adrian & Beyer, Andreas, 2014. "The dynamics of spillover effects during the European sovereign debt turmoil," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 134-153.

    More about this item

    Keywords

    international economics and trade ;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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