The interest rate pass-through in the euro area during the sovereign debt crisis

We investigate the pass-through of monetary policy to bank lending rates in the euro area during the sovereign debt crisis, in comparison to the pre-crisis period. We make the following contributions. First, we use a factor-augmented vector autoregression, which allows us to assess the responses of a large number of country-specific interest rates and spreads. Second, we analyze the effects of monetary policy on the components of the interest rate pass-through, which reflect banks' funding risk (including sovereign risk) and markups charged by banks over funding costs. Third, we not only consider conventional but also unconventional monetary policy. We find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis, the composition of the pass-through has changed. Specifically, expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer-term bank funding risk in peripheral and core countries during the crisis, but has been unable to lower banks' markups. This was not, or not as much, the case prior to the crisis. Unconventional monetary policy helped decreasing lending rates, mainly due to large shocks rather than a strong propagation.     

Sovereign CDS Spreads,Volatility, and Liquidity: Evidence from 2010 German Short Sale Ban

The paper examines global impact of 2010 German short sale ban on sovereign credit default swap (CDS) spreads, volatility, and liquidity across 54 countries. We find that CDS spreads continue rising after the ban in the debt crisis region, which suggests that the short selling ban is incapable of suppressing soaring borrowing costs in these countries. However, we find that the ban helps stabilize the CDS market by reducing CDS volatility. The reduction in CDS volatility is greater in the eurozone than that in the non‐eurozone. Furthermore, we find that the CDS market liquidity has been impaired during the ban for the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) countries. In contrast, there are no dramatic changes in the market liquidity for non‐PIIGS eurozone and non‐eurozone samples. The findings suggest that the short sale ban is ineffective to reduce sovereign borrowing costs in the debt crisis region if the underlying economy has not been significantly improved.     

主权信用违约互换的运作及启示

欧洲各国主权债务危机的频发,使得主权CDS在全球范围内备受瞩目。本文分析了主权CDS的市场发展状况、运作及定价机制;考察欧洲主权债务危机中主权CDS的行为;提出对我国地方政府债务问题的启示。研究发现:(1)主权CDS息差变化受到了欧元区因素、本国因素、投机和代理对冲的影响;(2)短期主权CDS供不应求;(3)禁止主权CDS的裸卖空交易存在不合理性;(4)西欧主权风险外溢使得东欧及新兴市场国家的主权CDS市场波动加剧。     

Impacts of the financial crisis on eurozone sovereign CDS spreads

We study the variation of sovereign credit default swaps (CDSs) of eurozone countries, their persistence and co-movements, with particular attention given to the impact of the financial crisis. Specifically, using a dual fractional integration model, we test the evidence of long memory for CDSs of ten eurozone countries. Our analysis reveals that price discovery processes satisfy the minimum requirements for a weak form of efficiency for sovereign CDS markets, even during the crisis. In contrast, we document the spreading out of persistent CDS uncertainty among the peripheral economies with its outbreak. We provide evidence that CDS uncertainty has implications for the pricing of sovereign risk including that of core countries in the crisis period. Finally, we present the potential spillover effects utilizing a dynamic conditional correlation model and show that, with the collapse of Lehman, the probability of a contagion increased across all countries and became more explicit for peripheral economies as the sovereign crisis took on a new dimension.     

Who Borrows from the Lender of Last Resort?

We analyze lender of last resort (LOLR) lending during the European sovereign debt crisis. Using a novel data set on all central bank lending and collateral, we show that weakly capitalized banks took out more LOLR loans and used riskier collateral than strongly capitalized banks. We also find that weakly capitalized banks used LOLR loans to buy risky assets such as distressed sovereign debt. This resulted in a reallocation of risky assets from strongly to weakly capitalized banks. Our findings cannot be explained by classical LOLR theory. Rather, they point to risk taking by banks, both independently and with the encouragement of governments, and highlight the benefit of unifying LOLR lending and bank supervision.     

Does the ECB act as a lender of last resort during the subprime lending crisis?: Evidence from monetary policy reaction models

We investigate whether the ECB aligns its monetary policy with financial crisis risk in EMU member countries. We find that since the outbreak of the subprime crisis the ECB has significantly increased net lending and reduced interest rates when banking and sovereign debt crisis risk in vulnerable EMU countries (Greece, Ireland, Italy, Portugal, and Spain) increases, while no significant effect is identified for the pre-crisis period and relatively tranquil EMU countries (Austria, Belgium, France, Germany, and the Netherlands). These findings suggest that the ECB acts as a Lender of Last Resort for vulnerable EMU countries.     

Sovereign credit rating determinants: A comparison before and after the European debt crisis

This paper compares the importance of different sovereign credit rating determinants over time, using a sample of 90 countries for the years 2002–2015. Applying the composite marginal likelihood approach, we estimate a multi-year ordered probit model for each of the three major credit rating agencies. After the start of the European debt crisis in 2009, the importance of the financial balance, the economic development and the external debt increased substantially and the effect of eurozone membership switched from positive to negative. In addition, GDP growth gained a lot of importance for highly indebted sovereigns and government debt became much more important for countries with a low GDP growth rate. These findings provide empirical evidence that the credit rating agencies changed their sovereign credit rating assessment after the start of the European debt crisis.     

The real effects of relationship lending✰

This paper studies the real effects of relationship lending on firm activity in Italy following Lehman Brothers’ default shock and Europe's sovereign debt crisis, two different crisis situations where in the latter, bank solvency was at the centre of the economic shock while being more peripheral in the former. We use a large data set that merges the comprehensive Italian Credit and Firm Registers. We find that following Lehman's default, banks offered more favourable continuation lending terms to firms with which they had stronger relationships. Such favourable conditions enabled firms to maintain higher levels of investment and employment. The insulation effects of tighter bank-firm relationships were still present during the European sovereign debt crisis, especially for firms tied to well capitalised banks.     

Granger-causality in peripheral EMU public debt markets: A dynamic approach

Our research aims to analyze the possible existence of Granger-causal relationships in the behavior of public debt issued by peripheral member countries of the European Economic and Monetary Union (EMU), with special emphasis on the recent episodes of crisis triggered in the eurozone sovereign debt markets since 2009. With this goal in mind, we make use of a database of daily frequency of yields on 10-year government bonds issued by five EMU countries (Greece, Ireland, Italy, Portugal and Spain), covering the entire history of the EMU from its inception on 1 January 1999 until 31 December 2010. In the first step, we explore the pair-wise Granger-causal relationship between yields, both for the whole sample and for changing subsamples of the data, in order to capture the possible time-varying causal relationship. This approach allows us to detect episodes of significant increase in Granger-causality between yields on bonds issued by different countries. In the second step, we study the determinants of these episodes, analyzing the role played by different factors, paying special attention to instruments that capture the total national debt (domestic and foreign) in each country.     

Sovereign Defaults,Credit to the Private Sector,and Domestic Credit Market Institutions

Sovereign defaults are associated with declines in foreign and domestic credit to the domestic private sector. This paper analyzes theoretically whether sovereign defaults can lead to this decline, even if domestic agents do not hold sovereign debt. It also studies whether the quality of domestic financial institutions affect the magnitude of this effect. In order to address these issues, the paper embeds the traditional sovereign borrower/foreign creditors relationship of the sovereign debt literature in a macromodel where widespread individual financial constraints limit a country's ability to reallocate resources. The paper finds that sovereign defaults can indeed generate a decline in foreign and domestic credit even if domestic agents do not hold sovereign debt, and that stronger domestic financial institutions can amplify this effect. These findings constitute a new step toward understanding the costs of sovereign defaults.     

Is small beautiful? The resilience of small banks during the European debt crisis

We examine the lending behaviour of small and large banks in the Eurozone during the sovereign debt crisis. Relative to large banks, small banks are less pro-cyclical in that they exhibit more stable lending growth across credit expansion and contraction periods. In peripheral countries, the portfolio rebalancing of small banks towards higher public debt (substitution effect) does not appear to cause a reduction of their lending to the private sector. Instead, the level of public debt seems to provide a liquidity buffer that influences bank-specific loan growth positively (complementarity effect), particularly during market-wide lending contractions. Our findings show that for small peripheral banks the substitution effect found in the literature can coexist with a complementarity effect when public debt grows faster than private loans. Our analysis contributes to the ongoing debate on the regulatory treatment of public debt in banks and supports incentives embedded in new banking regulation that penalise bank size.     

Surviving the perfect storm: The role of the lender of last resort☆

When banks are hit by a severe liquidity shock, central banks have a key role as lenders of last resort. Despite the well-established importance of this mechanism, it is challenging to analyze it empirically. We explore a unique setting in which banks suddenly lost access to market funding due to contagion fears at the onset of the euro area sovereign debt crisis. Using monthly data at the loan, bank, and firm level, we test the role of the central bank in a scenario of imminent collapse. We find that the liquidity obtained from the central bank played a key role in temporarily supporting the supply of credit to the real economy. However, the subdued loan demand, together with moral suasion and carry trade incentives, led to an increase in banks’ sovereign bond holdings using central bank funding.     

Bank use of sovereign CDS in the Eurozone crisis: Hedging and risk incentives

Using a comprehensive dataset from German banks, we document the usage of sovereign credit default swaps (CDS) during the European sovereign debt crisis of 2008–2013. Banks used the sovereign CDS market to extend, rather than hedge, their long exposures to sovereign risk during this period. Lower loan exposure to sovereign risk is associated with greater protection selling in CDS, the effect being weaker when sovereign risk is high. Bank and country risk variables are mostly not associated with protection selling. The findings are driven by the actions of a few non-dealer banks which sold CDS protection aggressively at the onset of the crisis, but started covering their positions at its height while simultaneously shifting their assets towards sovereign bonds and loans. Our findings underscore the importance of accounting for derivatives exposure in building a complete picture and understanding fully the economic drivers of the bank-sovereign nexus of risk.     

基于希腊主权债务危机的危机预警研究——兼对社会保障支出比重的定量分析

为了研究债务危机的成因及其预警机制,本文在对希腊主权债务危机演变进行描述性分析的基础上,建立了债务危机预警的Logistic模型.通过SPSS18.0统计软件分析,我们发现了影响债务危机发生的主要指标,包括:一般政府净贷款占GDP比率、国际收支占GDP比率以及社会保障支出占GDP比率、总储蓄规模占GDP比率以及通货膨胀率.其中,所选取的欧洲国家的社会保障支出占GDP的比重约为25％,对于债务危机的爆发的影响系数高达0.620.结合我国的经济形势与社会保障发展现状,本文了提出相关的政策建议.     

Heterogeneous effects of credit constraints on SMEs’ employment: Evidence from the European sovereign debt crisis

This paper takes advantage of access to detailed matched bank-firm data to investigate whether and how employment decisions of SMEs have been affected by credit constraints during the European sovereign debt crisis. Variability in banks’ financial health following the 2008 crisis is used as an exogenous determinant of firms’ access to credit. Findings, relative to the Belgian economy, clearly highlight that credit matters. They show that SMEs borrowing money from pre-crisis financially less healthy banks were significantly more likely to be affected by a credit constraint and, in turn, to adjust their labour input downwards than pre-crisis clients of more healthy banks. These results are robust across types of loan applications that were denied credit, i.e. applications to finance working capital, debt or new investments. Yet, estimates also show that credit constraints have been essentially detrimental for employment among SMEs experiencing a negative demand shock or facing strong product market competition. In terms of human resources management, credit constraints are not only found to foster employment adjustment at the extensive margin but also to increase the use of temporary layoff allowances for economic reasons. This outcome supports the hypothesis that short-time compensation programmes contribute to save jobs during recessions.     

A comprehensive approach to measuring the relation between systemic risk exposure and sovereign debt

Using an integrated model to control for simultaneity, as well as new risk measurement techniques such as Adapted Exposure CoVaR and Marginal Expected Shortfall (MES), we show that the aggregate systemic risk exposure of financial institutions is positively related to sovereign debt yields in European countries in an episodic manner, varying positively with the intensity of the financial crisis facing a particular nation. We find evidence of a simultaneous relation between systemic risk exposure and sovereign debt yields. This suggests that models of sovereign debt yields should also include the systemic risk of a country's financial system in order to avoid potentially important mis-specification errors. We find evidence that systemic risk of a country's financial institutions and the risk of sovereign governments are inter-related and shocks to these domestic linkages are stronger and longer lasting than international risk spillovers. Thus, the channel in which domestic sovereign debt yields can be affected by another nation's sovereign debt is mostly an indirect one in that shocks to a foreign country's government finances are transmitted to that country's financial system which, in turn, can spill over to the domestic financial system and, ultimately, have a destabilizing effect on the domestic sovereign debt market.     

希腊主权债务危机的成因与影响

日益严重的希腊主权债务危机将希腊推向了欧元区主权债务问题的风口浪尖,由此也形成了影响欧元区稳定运行的严峻挑战。该文基于国际金融危机对希腊经济与财政运行状况的影响,分析了引起希腊主权债务危机的成因及解决途径,指出解决希腊主权债务危机除了希腊自身的努力外,依然需要国际社会尤其是欧盟的援助。从全球的角度看,其他经济体的主权债务问题也同样值得警惕和重视。     

Liquidity crisis,relationship lending and corporate finance

This paper investigates the consequences of the liquidity shocks in wholesale funding markets during the 2007–2009 financial crisis on bank lending and corporate financing. We show that banks that relied more heavily on wholesale funding contracted lending more severely than banks that relied more on insured deposits. We then examine the effects of loan contraction on the financial positions of publicly traded firms. We find that both during and after the crisis, the change in leverage of bank-dependent firms is less than that of firms with access to public debt markets. In addition, bank-dependent firms rely more on cash than net equity issuance to finance operations. We also find that firms with established bank lending relationships weather the crisis better. Such firms are able to attain higher levels of leverage during the crisis, add to their cash holdings, secure new bank credit, and achieve higher profitability as a result.     

Sovereign stress and SMEs’ access to finance: Evidence from the ECB's SAFE survey

We study the effect of sovereign stress on SMEs’ capital structure using restricted-access data from the European Central Bank. We find that during the sovereign debt crisis, and controlling for borrowers’ quality, firms in stressed countries became more likely to be denied credit, to be credit rationed, and to face higher loan rates. Less creditworthy firms were not more likely to become credit constrained, suggesting no flight to quality in lending. We also find that in order to make up for the decline in bank credit firms in stressed countries began relying considerably more on retained earnings and government subsidies.