Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
968610 | Journal of Policy Modeling | 2012 | 15 Pages |
Abstract
This paper explores the relationship between sovereign risk and banking risk during the European sovereign debt crisis in May 2010. We link banks’ stock returns and CDS rates to sovereign CDS rates, to examine the spillover of sovereign risk to the banking system in the EU. More specifically, we use sovereign debt exposures from the EU's July 2010 stress tests to investigate whether heavily exposed banks were hit harder during the May 2010 crisis. The results are mixed. Banks exposed to distressed sovereign debt respond more strongly to changes in sovereign CDS rates. On closer examination, however, this result appears to be driven by banks which are located in countries experiencing sovereign debt problems.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Ivo J.M. Arnold,