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

René Kallestrup, David Lando, Agatha Murgoci

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

We show that banks' foreign asset holdings are significant determinants of bank and sovereign CDS premia. Our analysis uses detailed
data on the composition and risk of banks' foreign exposures. For the largest banks, a one standard deviation change in our foreign-
exposure risk measure leads to a 30 basis point change in the CDS premia. Further, we show that sovereign CDS premia are significantly
affected by the foreign exposures of their domestic banks. We quantify how this global spillover effect depends on the size and riskiness of the
sovereign's implicit and explicit guarantees extended to its domestic banking system.
We show that banks' foreign asset holdings are significant determinants of bank and sovereign CDS premia. Our analysis uses detailed
data on the composition and risk of banks' foreign exposures. For the largest banks, a one standard deviation change in our foreign-
exposure risk measure leads to a 30 basis point change in the CDS premia. Further, we show that sovereign CDS premia are significantly
affected by the foreign exposures of their domestic banks. We quantify how this global spillover effect depends on the size and riskiness of the
sovereign's implicit and explicit guarantees extended to its domestic banking system.

Conference

ConferenceConferinta Stiintifica Anuala a Economistilor Romani din Mediul Academic din Strainatate. ERMAS 2014
LocationUniversitatea Babes-Bolyai
CountryRomania
CityCluj-Napoca
Period18/08/201422/08/2014
Internet address

Keywords

    Cite this

    Kallestrup, R., Lando, D., & Murgoci, A. (2014). Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads. Paper presented at Conferinta Stiintifica Anuala a Economistilor Romani din Mediul Academic din Strainatate. ERMAS 2014, Cluj-Napoca , Romania.
    Kallestrup, René ; Lando, David ; Murgoci, Agatha. / Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads. Paper presented at Conferinta Stiintifica Anuala a Economistilor Romani din Mediul Academic din Strainatate. ERMAS 2014, Cluj-Napoca , Romania.73 p.
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    abstract = "We show that banks' foreign asset holdings are significant determinants of bank and sovereign CDS premia. Our analysis uses detaileddata on the composition and risk of banks' foreign exposures. For the largest banks, a one standard deviation change in our foreign-exposure risk measure leads to a 30 basis point change in the CDS premia. Further, we show that sovereign CDS premia are significantlyaffected by the foreign exposures of their domestic banks. We quantify how this global spillover effect depends on the size and riskiness of thesovereign's implicit and explicit guarantees extended to its domestic banking system.",
    keywords = "Credit risk, Banks, Sovereign risk",
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    Kallestrup, R, Lando, D & Murgoci, A 2014, 'Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads' Paper presented at, Cluj-Napoca , Romania, 18/08/2014 - 22/08/2014, .

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

    2014. Paper presented at Conferinta Stiintifica Anuala a Economistilor Romani din Mediul Academic din Strainatate. ERMAS 2014, Cluj-Napoca , Romania.

    Research output: Contribution to conferencePaperResearchpeer-review

    TY - CONF

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

    AU - Kallestrup,René

    AU - Lando,David

    AU - Murgoci,Agatha

    PY - 2014/2/7

    Y1 - 2014/2/7

    N2 - We show that banks' foreign asset holdings are significant determinants of bank and sovereign CDS premia. Our analysis uses detaileddata on the composition and risk of banks' foreign exposures. For the largest banks, a one standard deviation change in our foreign-exposure risk measure leads to a 30 basis point change in the CDS premia. Further, we show that sovereign CDS premia are significantlyaffected by the foreign exposures of their domestic banks. We quantify how this global spillover effect depends on the size and riskiness of thesovereign's implicit and explicit guarantees extended to its domestic banking system.

    AB - We show that banks' foreign asset holdings are significant determinants of bank and sovereign CDS premia. Our analysis uses detaileddata on the composition and risk of banks' foreign exposures. For the largest banks, a one standard deviation change in our foreign-exposure risk measure leads to a 30 basis point change in the CDS premia. Further, we show that sovereign CDS premia are significantlyaffected by the foreign exposures of their domestic banks. We quantify how this global spillover effect depends on the size and riskiness of thesovereign's implicit and explicit guarantees extended to its domestic banking system.

    KW - Credit risk

    KW - Banks

    KW - Sovereign risk

    M3 - Paper

    ER -

    Kallestrup R, Lando D, Murgoci A. Financial Sector Linkages and the Dynamics of Bank and Sovereign Credit Spreads. 2014. Paper presented at Conferinta Stiintifica Anuala a Economistilor Romani din Mediul Academic din Strainatate. ERMAS 2014, Cluj-Napoca , Romania.