Banking sector contingent liabilities and sovereign risk
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Description
The global financial crisis has underscored the need to pay attention to contingent government liabilities that could arise from bank failures for sovereign risk management. This paper proposes a simple method to construct a contingent liability index (CLI) for a banking sector that takes into account the size and concentration of the banking system, market expectations of bank defaults, and perceptions of government support to each bank. This method allows us to track potential government liabilities related to bank failures for 32 advanced and emerging economies on a monthly basis from 2006 to 2013. Furthermore, we find that the CLI is a significant determinant of sovereign CDS spreads. Our results suggest that a 1 percentage point increase in the CLI is associated with an increase in sovereign CDS spreads by 24 basis points for advanced economies and 75 basis points for emerging markets on average.
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ID Code: | 77849 | ||
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Item Type: | Contribution to Journal (Journal Article) | ||
Refereed: | Yes | ||
ORCID iD: |
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Measurements or Duration: | 15 pages | ||
Keywords: | Banking sector, Contingent liabilities, Sovereign risk | ||
DOI: | 10.1016/j.jempfin.2014.08.007 | ||
ISSN: | 0927-5398 | ||
Pure ID: | 32730277 | ||
Divisions: | Past > QUT Faculties & Divisions > QUT Business School Current > Schools > School of Economics & Finance |
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Copyright Owner: | Consult author(s) regarding copyright matters | ||
Copyright Statement: | This work is covered by copyright. Unless the document is being made available under a Creative Commons Licence, you must assume that re-use is limited to personal use and that permission from the copyright owner must be obtained for all other uses. If the document is available under a Creative Commons License (or other specified license) then refer to the Licence for details of permitted re-use. It is a condition of access that users recognise and abide by the legal requirements associated with these rights. If you believe that this work infringes copyright please provide details by email to qut.copyright@qut.edu.au | ||
Deposited On: | 19 Oct 2014 22:50 | ||
Last Modified: | 02 Apr 2024 20:07 |
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