Dissecting the ‘doom loop’: the bank-sovereign credit risk nexus during the US debt ceiling crisis

Gori, Filippo (2019): Dissecting the ‘doom loop’: the bank-sovereign credit risk nexus during the US debt ceiling crisis.

Abstract

Political events matter in economics. This paper uses the 2011 political stando  over increasing the US debt ceiling to de ne an instrument that is then used to estimate the impact on bank credit risk of changes in US credit risk. Results show that a 100 basis points increase in US sovereign default risk produces a 40 basis points increase in bank credit risk. Calculations also suggest that, as a consequence of the debt-ceiling crisis, US bank funding costs increased by approximately 18 basis points. three times larger than the corresponding e�ect of bank default risk on sovereigns'. Finally, calculations suggest that during the �rst two quarters of 2011, as a consequence of the debt ceiling crisis, US bank funding costs increased by approximately 18 basis points.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banks, Sovereign default risk
• Subjects: G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

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