An Empirical Study of International Spillover of Sovereign Risk to Bank Credit Risk

Winnie P.H. Poon, Jianfu Shen, John E. Burnett

Research output: Journal article publicationJournal articleAcademic researchpeer-review

3 Citations (Scopus)

Abstract

The severity and complexity of the recent financial crisis has motivated the need for understanding the relationships between sovereign ratings and bank credit ratings. This is the first study to examine the impact of the “international” spillover of sovereign risk to bank credit risk through both a ratings channel and an asset holdings channel. In the first case, the downgrade of sovereign ratings in GIIPS (Greece, Italy, Ireland, Portugal, and Spain) countries leads to rating downgrades of banks in the peripheral countries. The second channel indicates that larger asset holdings of GIIPS debt increases the credit risk of cross-border banks, and hence, the probabilities of downgrade.

Original languageEnglish
Pages (from-to)281-302
Number of pages22
JournalFinancial Review
Volume52
Issue number2
DOIs
Publication statusPublished - 1 May 2017

Keywords

  • bank credit ratings
  • credit rating agencies
  • G01
  • G21
  • G24
  • sovereign credit ratings
  • spillover effects

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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