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2014•RePEc: Research Papers in EconomicsRequires access

THE SOVEREIGN-BANK NEXUS

Kalin Nikolov, A. Popov

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Abstract

The sovereign debt crisis which erupted in the euro area in 2010 affected the global banking system and highlighted the close links between the fates of sovereigns and banks. It also prompted interventions by governments and central banks on a scale comparable to the programmes implemented during the financial crisis of 2008-09 in order to stabilise the banking sector. This article tackles two questions which are currently high on the policy agenda: What are the channels through which sovereign-bank linkages amplify twin fiscal/banking crises? And have tensions in euro area government bond markets been transmitted internationally through the bank lending channel? JEL Classification: E6

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The sovereign debt crisis which erupted in the euro area in 2010 affected the global banking system and highlighted the close links between the fates of sovereigns and banks. It also prompted interventions by governments and central banks on a scale comparable to the programmes implemented during the financial crisis of 2008-09 in order to stabilise the banking sector. This article tackles two questions which are currently high on the policy agenda: What are the channels through which sovereign-bank linkages amplify twin fiscal/banking crises? And have tensions in euro area government bond markets been transmitted internationally through the bank lending channel? JEL Classification: E6

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Available abstract

The sovereign debt crisis which erupted in the euro area in 2010 affected the global banking system and highlighted the close links between the fates of sovereigns and banks. It also prompted interventions by governments and central banks on a scale comparable to the programmes implemented during the financial crisis of 2008-09 in order to stabilise the banking sector. This article tackles two questions which are currently high on the policy agenda: What are the channels through which sovereign-bank linkages amplify twin fiscal/banking crises? And have tensions in euro area government bond markets been transmitted internationally through the bank lending channel? JEL Classification: E6

Key concepts: Financial system, Business, Sovereignty, Balance sheet, Solvency, Nexus (standard), Financial crisis, Sovereign default

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