Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads

René Kallestrup, David Lando, Agatha Murgoci

Publikation: Bidrag til konferencePaperForskningpeer review

Resumé

We show that nancial linkages between banks across borders are priced in the CDS markets beyond what can be explained by exposure to common factors. Information on the relative size and riskiness of aggregate exposures of banks in one country to non-nationals is used to construct a dynamic measure of the risk arising from cross-border exposures. We also construct a measure which in addition takes into account the relative size and riskiness of bank exposures to domestic government bonds and other domestic residents. Both measures help explaining the dynamics of bank CDS premia after controlling for country specic and global risk factors. Finally, a dynamic measure of the size of the implicit guarantee, that the sovereign may be assumed to extend for the domestic banking system, strongly impacts sovereign CDS premia.
We show that nancial linkages between banks across borders are priced in the CDS markets beyond what can be explained by exposure to common factors. Information on the relative size and riskiness of aggregate exposures of banks in one country to non-nationals is used to construct a dynamic measure of the risk arising from cross-border exposures. We also construct a measure which in addition takes into account the relative size and riskiness of bank exposures to domestic government bonds and other domestic residents. Both measures help explaining the dynamics of bank CDS premia after controlling for country specic and global risk factors. Finally, a dynamic measure of the size of the implicit guarantee, that the sovereign may be assumed to extend for the domestic banking system, strongly impacts sovereign CDS premia.

Konference

KonferenceThe 39th European Finance Association Annual Meeting (EFA 2012)
Nummer39
LokationCopenhagen Business School
LandDanmark
ByFrederiksberg
Periode15/08/201218/08/2012
Internetadresse

Emneord

  • Credit risk
  • Banks
  • Sovereign risk

Citer dette

Kallestrup, R., Lando, D., & Murgoci, A. (2012). Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads. Afhandling præsenteret på The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark.DOI: 10.2139/ssrn.2023635
Kallestrup, René ; Lando, David ; Murgoci, Agatha. / Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads. Afhandling præsenteret på The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark.44 s.
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Kallestrup, R, Lando, D & Murgoci, A 2012, 'Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads' Paper fremlagt ved The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark, 15/08/2012 - 18/08/2012, . DOI: 10.2139/ssrn.2023635

Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads. / Kallestrup, René; Lando, David; Murgoci, Agatha.

2012. Afhandling præsenteret på The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark.

Publikation: Bidrag til konferencePaperForskningpeer review

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AU - Kallestrup,René

AU - Lando,David

AU - Murgoci,Agatha

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AB - We show that nancial linkages between banks across borders are priced in the CDS markets beyond what can be explained by exposure to common factors. Information on the relative size and riskiness of aggregate exposures of banks in one country to non-nationals is used to construct a dynamic measure of the risk arising from cross-border exposures. We also construct a measure which in addition takes into account the relative size and riskiness of bank exposures to domestic government bonds and other domestic residents. Both measures help explaining the dynamics of bank CDS premia after controlling for country specic and global risk factors. Finally, a dynamic measure of the size of the implicit guarantee, that the sovereign may be assumed to extend for the domestic banking system, strongly impacts sovereign CDS premia.

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KW - Sovereign risk

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Kallestrup R, Lando D, Murgoci A. Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads. 2012. Afhandling præsenteret på The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Danmark. Tilgængelig fra, DOI: 10.2139/ssrn.2023635