Sovereign Risk and Deposit Dynamics: Evidence from Europe

25 Pages Posted: 9 Dec 2016

See all articles by David Grigorian

David Grigorian

International Monetary Fund (IMF)

Vlad Manole

Rutgers University, Department of Economics

Date Written: July 2016

Abstract

The unprecedented expansion of sovereign balance sheets since the global financial crisis has given a new meaning to the term sovereign risk. Developments in Europe since early 2010 presented new challenges for the functioning of private banks in an environment of heightened sovereign risk. This paper uses an innovative way of measuring the perception of sovereign risk and its impact on deposit dynamics during 2006-11. Using an extension of a common market discipline framework, it shows that exposure to sovereign risk may have limited the ability of banks in Europe to attract deposits. The results are robust to inclusion of conventional measures of bank performance and the sector-wide holdings of foreign sovereign debt.

Keywords: Sovereign risk, Europe, Financial crisis, Banks, Bank deposits, Time series, Econometric models, overeign risk, market discipline, bank deposits, European crisis

JEL Classification: E44, G21, G28

Suggested Citation

Grigorian, David A. and Manole, Vlad, Sovereign Risk and Deposit Dynamics: Evidence from Europe (July 2016). IMF Working Paper No. 16/145. Available at SSRN: https://ssrn.com/abstract=2882581

David A. Grigorian (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Vlad Manole

Rutgers University, Department of Economics ( email )

360 Martin Luther King Jr.
Newark, NJ 07102
United States

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