Managing the Sovereign-Bank Nexus

Departmental Papers, September 7, 2018

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Managing the Sovereign-Bank Nexus

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Bibliographic details

• Authors: Giovanni Dell'Ariccia, Caio Ferreira, Nigel Jenkinson, Luc Laeven, Alberto Martin, Camelia Minoiu, Alex Popov
• Published: September 7, 2018
• Series: Departmental Papers
• DOI: https://doi.org/10.5089/9781484359624.087

Summary and scope

• Reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus).
• Central questions examined:
  • How significant is this nexus?
  • What do we know about it?
  • To what extent is it a source of concern?
  • What is the role of policy intervention?
• Concludes with a review of recent policy proposals.

Key findings and themes addressed

• Examination of the bank-sovereign nexus, including:
  • Bank capital losses and bank distress.
  • Sovereign bonds and sovereign exposure.
  • Interactions between financial institutions and public debt.
• Consideration of systemic outcomes:
  • Banking crises and financial crises.
  • Effects on economic activity and money market conditions.
• Analytical elements:
  • Empirical evidence and theoretical frameworks on bank-sovereign linkages.
  • Role of instruments such as Credit default swap (CDS) and bank CDS in assessing risk.

Policy discussion and recommendations

• Assesses the extent to which the bank-sovereign nexus is a source of concern for financial stability.
• Evaluates the role of policy intervention in mitigating nexus-related vulnerabilities.
• Reviews recent policy proposals aimed at managing sovereign-bank linkages and reducing systemic risk.

Subject classifications and keywords

• Subject: Banking, Banking crises, Credit default swap, Financial crises, Financial institutions, Money, Public debt, Sovereign bonds
• Keywords: bank capital losses, bank CD, bank CDS, bank distress, bank risk, bank Risk, bank's CD, Banking crises, banking crisis, banks assets, Credit default swap, DP, DPPP, economic activity, Global, interest rate, resolution framework, Sovereign bonds, sovereign exposure, sovereign-bank nexus

Managing the Sovereign-Bank Nexus, Departmental Paper No. 2018/016

Content in this bundle

• Managing the Sovereign-Bank Nexus — Executive Summary
  • Managing the Sovereign-Bank Nexus — Executive Summary (Markdown version)
  • Managing the Sovereign-Bank Nexus — Executive Summary (PDF)