End of the sovereign-bank doom loop in the European Union?
- 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.
| Author details: | Giovanni CoviORCiDGND, Ulrich EydamORCiDGND |
|---|---|
| DOI: | https://doi.org/10.1007/s00191-018-0576-2 |
| ISSN: | 0936-9937 |
| ISSN: | 1432-1386 |
| Title of parent work (English): | Journal of evolutionary economics |
| Subtitle (English): | the Bank Recovery and Resolution Directive |
| Publisher: | Springer |
| Place of publishing: | Berlin ; Heidelberg ; New York |
| Publication type: | Article |
| Language: | English |
| Date of first publication: | 2020/01/01 |
| Publication year: | 2020 |
| Release date: | 2023/04/21 |
| Tag: | Bank Recovery and Resolution Directive; European Banking Union; bail-in tool; doom loop; financial stability; sovereign bail-out |
| Volume: | 30 |
| Issue: | 1 |
| Number of pages: | 26 |
| First page: | 5 |
| Last Page: | 30 |
| Organizational units: | Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften |
| DDC classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
| Peer review: | Referiert |
