Intertwined Sovereign and Bank Solvencies in a Model of Self-Fulfilling Crisis
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Summary:
Large fiscal financing needs, both in advanced and emerging market economies, have often been met by borrowing heavily from domestic banks. As public debt approached sustainability limits in a number of countries, however, high bank exposure to sovereign risk created a fragile inter-dependence between fiscal and bank solvency. This paper presents a simple model of twin (sovereign and banking) crisis that stresses how this interdependence creates conditions conducive to a self-fulfilling crisis.
Series:
Working Paper No. 2012/178
Subject:
Banking Credit Domestic debt Financial crises Financial institutions Money Nonbank financial institutions Public debt
English
Publication Date:
July 1, 2012
ISBN/ISSN:
9781475505269/1018-5941
Stock No:
WPIEA2012178
Pages:
29
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