Bank and sovereign debt risk connection : [Version Mai 2014]
- 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 moral hazard and liquidity risk (sudden deposit withdrawals): banks invest in risky government bonds as a form of capital buffer 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 |
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URN: | urn:nbn:de:hebis:30:3-345197 |
URL: | http://www.wiwi.uni-frankfurt.de/profs/faia/welcome_files/DFP_final.pdf |
Document Type: | Report |
Language: | English |
Year of Completion: | 2014 |
Year of first Publication: | 2014 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2014/08/12 |
Tag: | capital regulation; liquidity risk; sovereign risk |
Issue: | Version Mai 2014 |
Page Number: | 43 |
HeBIS-PPN: | 347238246 |
Institutes: | Wirtschaftswissenschaften / Wirtschaftswissenschaften |
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 |