Bank and sovereign debt risk connection : [draft december 2012]
- Euro area data show a positive connection between sovereign and bank risk, which increases with banks’ and sovereign long run fragility. We build a macro model with banks subject to incentive problems and liquidity risk (in the form of liquidity based banks’ runs) which provides a link between endogenous bank capital and macro and policy risk. Our banks also invest in risky government bonds used as capital buffer to self-insure against liquidity risk. The model can replicate the positive connection between sovereign and bank risk observed in the data. Central bank liquidity policy, through full allotment policy, is successful in stabilizing the spiraling feedback loops between bank and sovereign risk.
| Author: | Matthieu Darracq Pariès, Ester FaiaGND, Diego Rodriguez Palenzuela |
|---|---|
| URN: | urn:nbn:de:hebis:30:3-293779 |
| URL: | http://ssrn.com/abstract=2228494 |
| DOI: | https://doi.org/10.2139/ssrn.2228494 |
| Parent Title (German): | SAFE working paper series ; No. 7 |
| Series (Serial Number): | SAFE working paper (7) |
| Publisher: | Goethe-Univ., House of Finance, Sustainable Architecture for Finance in Europe, SAFE |
| Place of publication: | Frankfurt am Main |
| Document Type: | Working Paper |
| Language: | English |
| Year of Completion: | 2013 |
| Year of first Publication: | 2013 |
| Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
| Release Date: | 2013/04/18 |
| Tag: | capital regulation; liquidity risk; sovereign risk |
| Issue: | draft december 2012 |
| Page Number: | 34 |
| HeBIS-PPN: | 337756902 |
| Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
| Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF) | |
| Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) | |
| Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Deutsches Urheberrecht |
