Sovereign Risk and Deposit Dynamics: Evidence from Europe
IMF Working Papers, July 22, 2016
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Bibliographic details
- Authors: David A. Grigorian, Vlad Manole
- Published: July 22, 2016
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498381833.001
Overview
- Authors: David A. Grigorian, Vlad Manole
- Publication date: July 22, 2016
- Scope: Analysis of the impact of sovereign risk perceptions on bank deposit dynamics in Europe during 2006–11.
- Core proposition: Exposure to sovereign risk may have limited the ability of banks in Europe to attract deposits.
Key findings
- The paper uses an innovative measure of the perception of sovereign risk and links it to deposit dynamics during 2006–11.
- Using an extension of a common market discipline framework, the analysis shows that exposure to sovereign risk may have constrained banks’ deposit-gathering capacity.
- The results are robust to inclusion of conventional measures of bank performance and the sector-wide holdings of foreign sovereign debt.
Methodology
- Period analyzed: 2006–11.
- Framework: Extension of a common market discipline framework.
- Novelty: Introduction of an innovative way of measuring the perception of sovereign risk and its effect on deposit dynamics.
Robustness and controls
- Robustness tests include:
- Conventional measures of bank performance.
- Sector-wide holdings of foreign sovereign debt.
Policy implications (implicit from findings)
- Heightened sovereign risk can impair private banks’ ability to attract deposits, suggesting that sovereign balance sheet expansions and sovereign risk perceptions have real implications for banking sector liquidity and funding.
- Monitoring sovereign exposure and perceived sovereign risk may be important for bank supervisors and policymakers concerned with deposit stability and market discipline.