Bank Exposures and Sovereign Stress Transmission

64 Pages Posted: 8 Oct 2016 Last revised: 2 Apr 2018

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Marco Pagano

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Saverio Simonelli

University of Naples Federico II - Department of Economics and Statistics; Centre for Studies in Economics and Finance (CSEF)

Multiple version iconThere are 3 versions of this paper

Date Written: September 28, 2016

Abstract

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

Altavilla, Carlo and Pagano, Marco and Simonelli, Saverio, Bank Exposures and Sovereign Stress Transmission (September 28, 2016). CFS Working Paper, No. 539. Available at SSRN: https://ssrn.com/abstract=2848937 or http://dx.doi.org/10.2139/ssrn.2848937

Carlo Altavilla

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Marco Pagano (Contact Author)

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Saverio Simonelli

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cinthia - Monte S. Angelo
Napoli, Napoli 80126
Italy
0039 081 675366 (Phone)

HOME PAGE: http://www.csef.it/Simonelli

Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy

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