2017/02 | LEM Working Paper Series | ||||||||||||||||
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Bank-sovereign ties against interbank market integration: the case of the Italian segment |
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Susanna Saroyan and Lilit Popoyan |
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Keywords | |||||||||||||||||
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Money market fragmentation; sovereign risk; sovereign{bank spillover, contagion, bank regulation
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JEL Classifications | |||||||||||||||||
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E42; E58; G21; G28
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Abstract | |||||||||||||||||
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This paper investigates interbank market fragmentation that results
from the bank-sovereign risk nexus. We focus on the Italian market
fragmentation during the post-Lehman and sovereign debt crisis era. By
using Italian bank and GIPSI country CDS spread changes, we suggest a
new measure of sovereign/bank spillovers, based on partial
correlations. Then, we examine the relationship between the
sovereign-to-banks contagion risk variable and market fragmentation in
rate on the e-MID interbank market data. We nd that the bank{sovereign
nexus is a signicant source of fragmentation during the most acute
phase of the sovereign debt crisis. Our ndings suggest that even if
the home country/bank ties impact interbank market integration
seriously, the risk from other distressed countries is not negligible.
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