Powiązania między sektorem bankowym a kryzysem zadłużeniowym w strefie euro (Sovereign-Bank Nexus in the Euro Area)

Abstract

Interlinkages between the financial sector and the condition of the sovereign determine the existence of many transmission channels through which mutual crises can develop. To support this thesis the author analyzes the most important ones, such as market channel, asset holdings and collateral channel. In addition, the analysis points out that the government guarantees aiming at supporting the banking sector may, in the long run, turn out to be a Pyrrhic victory.

Moreover, the relationships between sovereign ratings and banks’ ratings, as well as sovereign debt management, can influence the health of financial system and endanger financial stability. Apart from assessing some possible remedial policy measures that reduce the negative feedback loops between the sovereign crisis and the banking sector vulnerabilities, the author proposes his own solution. Calculating the capital requirements for sovereign bonds holdings basing on risk weights, which are harmonized on the EU-level and regularly updated, would help diminish the adverse externalities affecting the condition of the financial system, arising from the increased risk of country’s default.

Note: Downloadable document is in Polish.

Keywords: home bias, sovereign-bank nexus, financial crisis, risk weights, sovereign debt, Credit Default Swaps

JEL Classification: G21, G28, G38, E58