Bank to Sovereign Risk Transmission: New Evidence
Global Financial Stability Notes, June 5, 2025
Source details
- Canonical URL
- Bank to Sovereign Risk Transmission: New Evidence
Other formats
Bibliographic details
- Authors: Tobias Adrian, Mahvash S Qureshi, Tomohiro Tsuruga
- Published: June 5, 2025
- Series: Global Financial Stability Notes
- DOI: https://doi.org/10.5089/9798229012195.065
Overview
- Title: Bank to Sovereign Risk Transmission: New Evidence
- Authors: Tobias Adrian, Mahvash S Qureshi, Tomohiro Tsuruga
- Publication date: June 5, 2025
- Series: Global Financial Stability Notes No 2025/003
- Issue: 003
- Volume: 2025
- Pages: 28
- DOI: https://doi.org/10.5089/9798229012195.065
- ISBN: 9798229012195
- ISSN: 2791-3112
- Stock No: GFSNEA2025003
Research question and identification strategy
- Examines transmission of credit risk from banks to the sovereign.
- Uses the collapse of the Silicon Valley Bank in March 2023 as an exogenous shock that "reverbered globally across banking sectors" to identify the effect.
Key findings
- There is a strong transmission of credit risk from the banking sector to the sovereign in the United States in the face of adverse banking-sector shocks.
- A strong transmission is also observed in other major economies.
- The impact of banking-sector stress on sovereign credit risk is more pronounced in economies with:
- higher public debt (relative to GDP);
- greater exposure of the banking sector to domestic sovereign debt;
- less well-capitalized banking systems.
Interpretation and implications
- The results suggest that investors view banking sector stress as particularly economically costly for countries with higher public debt, greater bank holdings of domestic sovereign debt, and weaker bank capitalization.
- The choice of the SVB collapse in March 2023 serves as a global, observable shock to trace bank-to-sovereign risk channels.
Subject classifications and keywords
- Subjects: Bank credit, Central banks, Commercial banks, Credit default swap, Credit risk, Financial institutions, Financial regulation and supervision, Money, Public debt
- Keywords: Bank credit, banks' CD, Commercial banks, Credit default swap, Credit risk, credit risk in the US, Global, Global financial crisis, Government debt, Macrofinancial stability, Regulatory reforms, Silicon Valley Bank, Sovereign, sovereign credit risk, sovereign-bank Nexus, SVB collapse
Source: Global Financial Stability Notes No 2025/003, "Bank to Sovereign Risk Transmission: New Evidence", Tobias Adrian; Mahvash S Qureshi; Tomohiro Tsuruga; June 5, 2025.
Content in this bundle
- Bank to Sovereign Risk Transmission: New Evidence