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Sovereign-bank nexus: risk transfers and causality
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Whilst banks are exposed to sovereign risk, sovereigns are exposed to bank risk. This Work Project investigates the linkage between both, i.e., the sovereign-bank nexus. Focusing on a sample of 11 European countries during 2014-2020, evidence supporting a positive response of banks’ home country sovereign debt holdings to increases in sovereign bond spreads and decreases in profitabilityis presented. It is also shown that banks’ solvency over this period was connected to their home country sovereign bond spreads. Lastly, adding a sample of 40 banks, it is confirmed that the sovereign-bank link age was still in place during the 2017-2020period.
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Palavras-chave
Sovereign-bank nexus Banking union Giips Home bias