Credit Spread Interdependencies of European States and Banks During the Financial Crisis (Alter A., Schuler Y. S.)

Contagion in Banking Financial Crises

Abstract This study analyzes the relationship between the default risk of several European states and financial institutions during the period June 2007 - May 2010. It investigates how government bailout schemes affected this linkage. We consider sovereign credit default swap (CDS) spreads from seven Eurozone member states (France, Germany, Italy, Ireland, Netherlands, Portugal, and Spain) together with a selection of bank CDS series from these states. Our main findings suggest that in the period preceding government rescue schemes the contagion from bank credit spreads disperses into the sovereign CDS market. After government interventions, due to changes in the composition of both banks' and sovereign balance sheets, our results underline the augmented importance of the government CDS spreads in the price discovery mechanism of banks' CDS series. Furthermore, a financial sector shock affects more strongly the sovereign CDS spreads in the short-run however the impact becomes insignificant at a long horizon. The variability in linkages between bank and sovereign CDS spreads can be associated with differences in state support accessed by each bank. Our cross-country analysis reveals noticeable differences in the outcomes of government bailouts.
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Libref/ Alter A., Schuler Y. S. (2011) "Credit Spread Interdependencies of European States and Banks During the Financial Crisis", pp. 1 - 44
© Программирование — Александр Красильников, 2008
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