TY  - JOUR
A1  - Covi, Giovanni
A1  - Eydam, Ulrich
T1  - End of the sovereign-bank doom loop in the European Union?
BT  - the Bank Recovery and Resolution Directive
JF  - Journal of evolutionary economics
N2  - In this paper we examine the relationship between the default risk of banks and sovereigns, i.e. the 'doom-loop'. Specifically, we try to assess the effectiveness of the implementation of the new recovery and resolution framework in the European Union. We use a panel with daily data on European banks and sovereigns ranging from 2012 to 2016 in order to test the effects of the Bank Recovery and Resolution Directive on the two-way feedback process. We find that there was a pronounced feedback loop between banks and sovereigns from 2012 to 2014. However, after the implementation of the European Banking Union, in 2015/2016, the magnitude of the doom-loop decreased and the spillovers became not statistically significant. Furthermore, our results suggest that the implementation of the new resolution framework is a suitable candidate to explain this finding. Overall, the results are robust across several specifications.
KW  - financial stability
KW  - sovereign bail-out
KW  - bail-in tool
KW  - doom loop
KW  - European Banking Union
KW  - Bank Recovery and Resolution Directive
Y1  - 2020
U6  - https://doi.org/10.1007/s00191-018-0576-2
SN  - 0936-9937
SN  - 1432-1386
VL  - 30
IS  - 1
SP  - 5
EP  - 30
PB  - Springer
CY  - Berlin ; Heidelberg ; New York
ER  -