Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147977
Authors: 
Schnabel, Isabel
Schüwer, Ulrich
Year of Publication: 
2016
Series/Report no.: 
Arbeitspapier, Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung 07/2016
Abstract: 
The positive relationship between bank and sovereign credit risk in the Eurozone, the so-called sovereign-bank nexus, is seen as a major threat for the stability of the Eurozone. This paper explores potential bank-level and country-level drivers of this relationship. We find that banks' home bias in their sovereign exposures and their low equity ratios as well as countries' high debt-to-GDP ratios and low perceived government effectiveness are positively related to the sovereign-bank nexus. While these results do not necessarily reflect causal relationships, they suggest that promoting banks' diversification of sovereign exposures could be an effective measure to mitigate the sovereign-bank nexus.
Subjects: 
sovereign-bank nexus
home bias
sovereign exposures
CDS spreads
JEL: 
G21
G28
Document Type: 
Working Paper

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