Sovereign Risk and Deposit Dynamics: Evidence from Europe

Author/Editor:

David A. Grigorian ; Vlad Manole

Publication Date:

July 22, 2016

Electronic Access:

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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:

The unprecedented expansion of sovereign balance sheets since the global financial crisis has given a new meaning to the term sovereign risk. Developments in Europe since early 2010 presented new challenges for the functioning of private banks in an environment of heightened sovereign risk. This paper uses an innovative way of measuring the perception of sovereign risk and its impact on deposit dynamics during 2006–11. Using an extension of a common market discipline framework, it shows that exposure to sovereign risk may have limited the ability of banks in Europe to attract deposits. The results are robust to inclusion of conventional measures of bank performance and the sector-wide holdings of foreign sovereign debt.

Series:

Working Paper No. 2016/145

Subject:

Bank deposits Banking Commercial banks Deposit insurance Financial crises Financial institutions Financial services Public debt

English

Publication Date:

July 22, 2016

ISBN/ISSN:

9781498381833/1018-5941

Stock No:

WPIEA2016145

Pages:

24

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