Title

An empirical study of international spillover of sovereign risk to bank credit risk

Document Type

Journal article

Source Publication

Financial Review

Publication Date

1-1-2017

Volume

52

Issue

2

First Page

281

Last Page

302

Publisher

Wiley-Blackwell

Keywords

bank credit ratings, credit rating agencies, G01, G21, G24, sovereign credit ratings, spillover effects

Abstract

The severity and complexity of the recent financial crisis has motivated the need for understanding the relationships between sovereign ratings and bank credit ratings. This is the first study to examine the impact of the “international” spillover of sovereign risk to bank credit risk through both a ratings channel and an asset holdings channel. In the first case, the downgrade of sovereign ratings in GIIPS (Greece, Italy, Ireland, Portugal, and Spain) countries leads to rating downgrades of banks in the peripheral countries. The second channel indicates that larger asset holdings of GIIPS debt increases the credit risk of cross-border banks, and hence, the probabilities of downgrade.

DOI

10.1111/fire.12114

Print ISSN

07328516

E-ISSN

15406288

Funding Information

Financially supported by research grant (DR12B7) from Lingnan University, Hong Kong. {DR12B7}

Publisher Statement

Copyright © 2017 The Eastern Finance Association. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Poon, W. P. H., Shen, J., & Burnett, J. E. (2017). An empirical study of international spillover of sovereign risk to bank credit risk. Financial Review, 52(2), 281-302. doi: 10.1111/fire.12114

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