Does Credit Risk Leads to Bank Sovereign Debt Exposure?✰

44 Pages Posted: 14 Feb 2024

See all articles by Laura Baselga-Pascual

Laura Baselga-Pascual

University of Deusto - Deusto Business School

Lidia Loban

affiliation not provided to SSRN

Emma Myllymaki

Audencia Business School

Abstract

This study explores the link between bank credit risk and sovereign debt exposure using data from international commercial banks (2002-2022). Employing regression and panel data models, including Propensity Score Matching, to address endogeneity, we find that higher impaired loan levels correlate with increased sovereign debt holdings. This suggests banks turn to sovereign debt as a safe haven against credit risk. However, the 2023 defaults of notable US banks highlight the inherent risks of such strategies in high-interest rate environments.

Keywords: G21, G28, G32

Suggested Citation

Baselga-Pascual, Laura and Loban, Lidia and Myllymaki, Emma, Does Credit Risk Leads to Bank Sovereign Debt Exposure?✰. Available at SSRN: https://ssrn.com/abstract=4726336 or http://dx.doi.org/10.2139/ssrn.4726336

Laura Baselga-Pascual (Contact Author)

University of Deusto - Deusto Business School ( email )

Camino de Mundaiz, 50
San Sebastian, 20012
Spain

Lidia Loban

affiliation not provided to SSRN ( email )

No Address Available

Emma Myllymaki

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

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