Financial sector bailouts, sovereign bailouts, and the transfer of credit risk

Matthew Greenwood-Nimmo, Jingong Huang, Viet Hoang Nguyenc

    Research output: Contribution to journalArticle

    Abstract

    We develop an empirical network model to study credit risk spillovers among a group of eighteen sovereigns and their financial sectors from 2006 to 2015. Initially a net source of credit risk, the financial sector becomes a net recipient after the 2008 financial sector bailouts in many countries. Fiscal fundamentals explain much of the heterogeneity in financial-sovereign spillovers over this period. The subsequent European sovereign bailouts disrupt the feedback between sovereign risk and local financial sector risk. Depending on the initial fiscal position of the target country, sovereign bailouts may also disrupt international credit risk spillovers originating from the target sovereign.
    Original languageEnglish
    Pages (from-to)121-142
    JournalJournal of Financial Markets
    Volume42
    DOIs
    Publication statusPublished - 2019

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