Download publication

Working Paper

Are banks affected by their holdings of government debt?

This Working Paper sheds light on the link between sovereign and banking risk in the euro zone. It provides an empirical analysis of the impact of government debt holdings on the stock market performances of the European banks stress tested in the EBA’s July and December 2011 exercises.

By: and Date: March 26, 2012 European Macroeconomics & GovernanceFinance & Financial Regulation Tags & Topics

The strong relation between sovereign and banking stress is frequently emphasised, especially since the start of the European sovereign debt crisis. This working paper sheds light on the determinants of the link. It studies the stock market performance and the holdings of government debt of the banks stress tested by the European Banking Authority in July and December 2011. A number of results stand out:

  • Banks’ holdings of the sovereign bonds of vulnerable countries generally decreased during the period December 2010 to September 2011.
  • The average stock market performance of each country’s banks was very uneven during 2011. The long-term refinancing operation (LTRO) had no material effect on banks’ stock market values.
  • Greek debt holdings had an effect on banks’ market values in the period July to October 2011 while after October this effect disappeared. Holdings of Italian and Irish debt had a material effect on banks’ market value in the period October to December 2011. Holdings of debt of other periphery countries, in particular Spain, were not an issue. The July PSI deal did not substantially affect the risk resulting from holdings of debt other than Greek debt.
  • The location of banks matters for their market value. This highlights the need to form a banking union in the euroarea.
View comments
Read article Download PDF More on this topic

Policy Contribution

PC 12 2017COVER2

The global decline in the labour income share: is capital the answer to Germany’s current account surplus?

Analysing the major divergences between the three largest euro-area countries in terms of unit labour costs and current accounts, to the broader debate on labour income shares. Data suggests that capital and labour have been complements.

By: Bennet Berger and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: April 26, 2017
Read about event More on this topic

Upcoming Event

May
11
12:30

Financial Times - Bruegel Forum: the future of Europe after the French election

The second event in the Financial Times - Bruegel Forum series will look at how the results of the French elections will affect Europe.

Speakers: Guntram B. Wolff and Tony Barber Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article Download PDF More on this topic

Policy Contribution

PC 11 2017 2004test

Tackling Europe’s crisis legacy: a comprehensive strategy for bad loans and debt restructuring

Years after the start of the financial crisis, non-performing loans and private debt remain obstacles to the recovery of bank credit and investment.

By: Maria Demertzis and Alexander Lehmann Topic: Finance & Financial Regulation Date: April 21, 2017
Read article Download PDF More by this author

Working Paper

Cover WP 2017_06

Regional and global financial safety nets: the recent European experience and its implications for regional cooperation in Asia

Comparing and evaluating financial assistance programmes of four euro-area countries (Greece, Ireland, Portugal, and Cyprus) and three non-euro-area countries (Hungary, Latvia, and Romania) of the European Union in the aftermath of the 2007/08 global financial and economic crisis. Asian countries can draw several lessons from European experiences.

By: Zsolt Darvas Topic: European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance Date: April 20, 2017
Read article More on this topic More by this author

Podcast

Podcast

Labour mobility in Europe

With anti-immigration sentiment on the rise, we look into the issue of labour mobility in Europe. How does migration affect labour markets and how does perception of migration differ from reality? What are the economic challenges for migrants and how do these challenges reflect on social integration? We try to answer these questions with our guests in this episode of The Sound of Economics.

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: April 20, 2017
Read about event More on this topic

Past Event

Past Event

Understanding the French elections

This is a restricted workshop on the forthcoming French elections to understand the challenges and possible scenarios.

Speakers: Grégory Claeys, Thomas Guénolé-Ryzhakov, Bruno Jeanbart and Guillaume Tusseau Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 19, 2017
Read about event

Upcoming Event

May
30
11:00

Geo-blocking in the digital single market

Geo-blocking is a discriminatory practice that is wide-spread in EU. It prevents online customers from accessing and purchasing products or services from a website based in another member state

Speakers: Felipe Florez Duncan, Marine Elgrichi, J. Scott Marcus, Fabian Paagman, Bertin Martens, Georgios Petropoulos, Agustin Reyna, Werner Stengg and Roza von Thun Topic: European Macroeconomics & Governance, Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event

Upcoming Event

May
31
12:30

Inclusive growth: global and European lessons for Spain

Can manufacturing still be a driver for inclusive growth around the world? What European and national policies can foster inclusive growth in Europe? What is the situation in Spain and what can Spain learn from the global and European experiences?

Speakers: Cristina Cabrera, Zsolt Darvas, Maria Demertzis, Alejandra Kindelán, Robert Lawrence and Federico Steinberg Topic: European Macroeconomics & Governance, Global Economics & Governance Location: Calle Los Madrazo 36-38 Madrid
Read about event More on this topic

Upcoming Event

Jun
1-2
08:30

Fiscal frameworks in europe: background and perspectives

On 1-2 June Bruegel together with Danmarks Nationalbank and the Copenhagen Business School will organise a conference about fiscal frameworks in Europe. The conference will re-evaluate fiscal frameworks in Europe in light of experience gathered since the formation of the Economic and Monetary Union (EMU). The implications for the design of fiscal policy stemming from […]

Topic: European Macroeconomics & Governance Location: Danmarks Nationalbank
Read about event More on this topic

Past Event

Past Event

Can EMU survive a multi speed Europe?

On 6 April Bruegel, as in previous years, hosted the presentation of the Euro Yearbook, a collection of experts’ insights on the construction of the European Monetary Union through 2016.

Speakers: Pablo Zalba Bidegain, Maria Demertzis, Fernando Fernandez, Javier Méndez Llera, Karl Pichelmann and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 6, 2017
Read article More on this topic

Blog Post

Schoenmaker pic
Nicolas Véron

EBA relocation should support a long-term ‘twin peaks’ vision

As the Commission launches a review of European financial supervision, the authors argue that Europe needs to move towards a twin peaks model – dividing supervision of prudential and conduct-of-business issues. But this is a long-term vision, and will require institution building. The immediate priorities are to choose a new home for the EBA and reinforce ESMA.

By: Dirk Schoenmaker and Nicolas Véron Topic: Finance & Financial Regulation Date: April 5, 2017
Read about event

Past Event

Past Event

Micro- and macro-based methods in assessing the impact of investment

This workshop will discuss methods for accurately evaluating the performance of public and private investment initiatives.

Speakers: Francesco Di Comite, Grégory Claeys, Zsolt Darvas, Helmut Kraemer- Eis, Áron Gereben, Robert P. Lieli, Simon Mizrahi, Amine Ouazad, Debora Revoltella, John K. Swales, Simone Signore, Natacha Valla, Marcin Wolski and Guntram B. Wolff Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: April 5, 2017
Load more posts