A new measure for gauging the riskiness of European banks' sovereign bond portfolios

Philip Molyneux, Livia Pancotto, Alessio Reghezza

Research output: Contribution to journalArticlepeer-review

Abstract

For a sample of 51 European banks, during 2010-2016, we construct a novel measure (SovRisk) which captures the riskiness of sovereign bond portfolios. We demonstrate the ability of this measure to explain the phases of the European sovereign debt crisis while accounting for the substantial differences between distressed and non-distressed countries. We contend that SovRisk can be used as a complement to bank Credit Default Swap (CDS) spreads, or a substitute in the absence of traded CDS, for measuring banks’ sovereign risk.
Original languageEnglish
Article number101887
JournalFinance Research Letters
Early online date17 Dec 2020
DOIs
Publication statusE-pub ahead of print - 17 Dec 2020

Keywords

  • bank sovereign risk exposure
  • sovereign bond portfolios
  • sovereign bank nexus

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