Bank Exposures and Sovereign Stress Transmission
64 Pages Posted: 8 Oct 2016 Last revised: 2 Apr 2018
Date Written: September 28, 2016
Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the determinants of changes in banks’ sovereign exposures and their effects during and after the crisis. First, public, bailed out and poorly capitalized banks responded to sovereign stress by purchasing domestic public debt more than other banks, with public banks’ purchases growing especially in coincidence with the largest ECB liquidity injections. Second, bank exposures significantly amplified the transmission of risk from the sovereign and its impact on lending. This amplification of the impact on lending does not appear to arise from spurious correlation or reverse causality.
Keywords: overeign exposures, sovereign risk, bank lending, credit risk, euro, crisis
JEL Classification: E44, F3, G01, G21, H63
Suggested Citation: Suggested Citation