Download This PaperDoes Credit Risk Leads to Bank Sovereign Debt Exposure?✰
44 Pages Posted: 14 Feb 2024
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: 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
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