Italian Sovereign Spreads: Their Determinants and Pass-through to Bank Funding Costs and Lending Conditions

April 3, 2013

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Format: Chicago

Edda Zoli. Italian Sovereign Spreads: Their Determinants and Pass-through to Bank Funding Costs and Lending Conditions, (USA: International Monetary Fund, 2013) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Volatility in Italian sovereign spreads has increased since mid-2011. This paper finds that news on the euro area debt crisis and country specific events were important drivers of sovereign spreads. Movements in sovereign spreads affect CDS spreads and bond yields of Italian banks, and are transmitted rapidly to firm lending rates. Banks with lower capital ratios and higher nonperforming loans were found to be more sensitive to swings in sovereign spreads. Credit supply constraints due to bank funding shortages from the sovereign debt crisis were a major factor behind the lending slowdown in late 2011, while in 2012 weak demand appears to have been driving changes in credit more than supply.

Subject: Banking, Bond yields, Credit, Credit default swap, Financial institutions, Financial services, Money, Sovereign bonds, Yield curve

Keywords: Access to funding, Bank, Bank capital, Bank funding costs, Bank risk, Banks CD, Banks' CD, BNP Paribas, Bond yields, CDS, CDS premium, CDS spread, Commerzbank, Comparison group, Credit, Credit default swap, Funding cost, Global, Government bond bond yield, Italian sovereign spreads, Lending, Lending conditions, Loan supply and demand, Sovereign bonds, WP, Yield curve

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/084
Stock No:

WPIEA2013084
ISBN:

9781484357705
ISSN:

1018-5941

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