The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Sovereign Debt Crises
Ricardo Correa and Horacio Sapriza
2014-1104  (May 2014)

Abstract:  Sovereign debt crises have been recurrent events over the past two centuries. In recent years, the timing of sovereign crises has coincided or has directly followed banking crises. The link between sovereigns and banks tightened as the contingent liability that the banking sector represents for the sovereign grew, as financial "safety nets" became more common. This chapter analyzes the transmission channels between sovereigns and banks, with a focus on the effect of sovereign distress on bank solvency and financing. It then highlights the notable cost to the real economy of the close connection between sovereigns and banks. Breaking the "feedback loop" between these two sectors should be an important policy priority.

Full paper (196 KB PDF) | Full paper (screen reader version)

Sovereign default, banking crises, government guarantees, financial safety net, bank regulation

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 2014 IFDPs
Accessibility | Contact Us
Last update: June 3, 2014