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

René Kallestrup, David Lando, Agatha Murgoci

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

Resumé

We show that CDS premiums of sovereigns are significantly affected by the foreign exposures of their domestic banks. Our analysis uses a simple risk-weighted exposure measure which aggregates detailed data on the composition and risk of banks' foreign exposures. A 1 basis point change in our risk weighted exposure measure corresponds to an average change of approximately 0.4 bp in sovereign CDS spreads. Extensive robustness checks confirm that the explanatory power of our measure is not due to common factors in CDS premiums. We also measure the size and riskiness of the sovereign's implicit and explicit guarantees extended to its domestic banking system.
We show that CDS premiums of sovereigns are significantly affected by the foreign exposures of their domestic banks. Our analysis uses a simple risk-weighted exposure measure which aggregates detailed data on the composition and risk of banks' foreign exposures. A 1 basis point change in our risk weighted exposure measure corresponds to an average change of approximately 0.4 bp in sovereign CDS spreads. Extensive robustness checks confirm that the explanatory power of our measure is not due to common factors in CDS premiums. We also measure the size and riskiness of the sovereign's implicit and explicit guarantees extended to its domestic banking system.
SprogEngelsk
TidsskriftJournal of Empirical Finance
Vol/bind38
Udgave nummerPart A
Sider374-393
ISSN0927-5398
DOI
StatusUdgivet - sep. 2016

Emneord

  • Credit risk
  • Banks
  • Sovereign risk

Citer dette

Kallestrup, René ; Lando, David ; Murgoci, Agatha. / Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads. I: Journal of Empirical Finance. 2016 ; Bind 38, Nr. Part A. s. 374-393
@article{2a5dd2deb78847c8a4f2b2cfca3876ae,
title = "Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads",
abstract = "We show that CDS premiums of sovereigns are significantly affected by the foreign exposures of their domestic banks. Our analysis uses a simple risk-weighted exposure measure which aggregates detailed data on the composition and risk of banks' foreign exposures. A 1 basis point change in our risk weighted exposure measure corresponds to an average change of approximately 0.4 bp in sovereign CDS spreads. Extensive robustness checks confirm that the explanatory power of our measure is not due to common factors in CDS premiums. We also measure the size and riskiness of the sovereign's implicit and explicit guarantees extended to its domestic banking system.",
keywords = "Credit risk, Banks, Sovereign risk, Credit risk, Banks, Sovereign risk",
author = "Ren{\'e} Kallestrup and David Lando and Agatha Murgoci",
year = "2016",
month = "9",
doi = "10.1016/j.jempfin.2016.01.004",
language = "English",
volume = "38",
pages = "374--393",
journal = "Journal of Empirical Finance",
issn = "0927-5398",
publisher = "Elsevier",
number = "Part A",

}

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

I: Journal of Empirical Finance, Bind 38, Nr. Part A, 09.2016, s. 374-393.

Publikation: Bidrag til tidsskriftTidsskriftartikelForskningpeer review

TY - JOUR

T1 - Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads

AU - Kallestrup,René

AU - Lando,David

AU - Murgoci,Agatha

PY - 2016/9

Y1 - 2016/9

N2 - We show that CDS premiums of sovereigns are significantly affected by the foreign exposures of their domestic banks. Our analysis uses a simple risk-weighted exposure measure which aggregates detailed data on the composition and risk of banks' foreign exposures. A 1 basis point change in our risk weighted exposure measure corresponds to an average change of approximately 0.4 bp in sovereign CDS spreads. Extensive robustness checks confirm that the explanatory power of our measure is not due to common factors in CDS premiums. We also measure the size and riskiness of the sovereign's implicit and explicit guarantees extended to its domestic banking system.

AB - We show that CDS premiums of sovereigns are significantly affected by the foreign exposures of their domestic banks. Our analysis uses a simple risk-weighted exposure measure which aggregates detailed data on the composition and risk of banks' foreign exposures. A 1 basis point change in our risk weighted exposure measure corresponds to an average change of approximately 0.4 bp in sovereign CDS spreads. Extensive robustness checks confirm that the explanatory power of our measure is not due to common factors in CDS premiums. We also measure the size and riskiness of the sovereign's implicit and explicit guarantees extended to its domestic banking system.

KW - Credit risk

KW - Banks

KW - Sovereign risk

KW - Credit risk

KW - Banks

KW - Sovereign risk

U2 - 10.1016/j.jempfin.2016.01.004

DO - 10.1016/j.jempfin.2016.01.004

M3 - Journal article

VL - 38

SP - 374

EP - 393

JO - Journal of Empirical Finance

T2 - Journal of Empirical Finance

JF - Journal of Empirical Finance

SN - 0927-5398

IS - Part A

ER -