Managing the Sovereign-Bank Nexus

56 Pages Posted: 24 Sep 2018

See all articles by Giovanni Dell'Ariccia

Giovanni Dell'Ariccia

International Monetary Fund (IMF) - Research Department; Centre for Economic Policy Research (CEPR)

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Alexander A. Popov

European Central Bank (ECB)

Caio Ferreira

Government of the Federative Republic of Brazil - Central Bank of Brazil

Nigel Jenkinson

Bank of England - Monetary Analysis and Statistics

Alberto Martin

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR)

Camelia Minoiu

Federal Reserve Board

Date Written: September 24, 2018

Abstract

This paper identifies the various channels that give rise to a “sovereign-bank nexus” whereby the financial health of banks and sovereigns is intertwined. We find that banks and sovereigns are linked by three interacting channels: banks hold large amounts of sovereign debt; banks are protected by government guarantees; and the health of banks and governments affect and is affected by economic activity. Evidence suggests that all three channels are relevant. The paper concludes with a discussion of the policy implications of these findings.

Keywords: fiscal policy, sovereign risk, financial stability, financial crisis, sovereign-bank nexus

JEL Classification: E62, F34, G01, G21

Suggested Citation

Dell'Ariccia, Giovanni and Laeven, Luc A. and Popov, Alexander A. and Ferreira, Caio and Jenkinson, Nigel and Martin, Alberto and Minoiu, Camelia, Managing the Sovereign-Bank Nexus (September 24, 2018). ECB Working Paper No. 2177. Available at SSRN: https://ssrn.com/abstract=3254137

Giovanni Dell'Ariccia (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8135 (Phone)
202-623-4352 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Alexander A. Popov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Caio Ferreira

Government of the Federative Republic of Brazil - Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Nigel Jenkinson

Bank of England - Monetary Analysis and Statistics

Threadneedle Street
London EC2R 8AH
United Kingdom

Alberto Martin

Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Camelia Minoiu

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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