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Bank exposures and sovereign stress transmission

Author

Listed:
  • Altavilla, Carlo
  • Pagano, Marco
  • Simonelli, Saverio
Abstract
Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the causes and effects of banks’ sovereign exposures during and after the euro crisis. First, in the vulnerable countries, the publicly owned, recently bailed out and less strongly capitalized banks reacted to sovereign stress by increasing their domestic sovereign holdings more than other banks, suggesting that their choices were affected both by moral suasion and by yield-seeking. Second, their exposures significantly amplified the transmission of risk from the sovereign and its impact on lending. This amplification of the impact on lending cannot be ascribed to spurious correlation or reverse causality. JEL Classification: E44, F30, G01, G21, H63

Suggested Citation

  • Altavilla, Carlo & Pagano, Marco & Simonelli, Saverio, 2016. "Bank exposures and sovereign stress transmission," ESRB Working Paper Series 11, European Systemic Risk Board.
    • Handle: RePEc:srk:srkwps:201611
    Note: 2279334
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    File URL: https://www.esrb.europa.eu//pub/pdf/wp/esrbwp11.en.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    credit risk; diabolic loop; euro debt crisis; lending; sovereign exposures; sovereign risk;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F3 - International Economics - - International Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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