The impact of sovereign rating changes on the activity of European banks |
| |
Institution: | 1. University of Canterbury, Department of Economics and Finance, Christchurch 8140, New Zealand;2. Bangor University (Honorary), Bangor Business School, Bangor LL57 2DG, UK;1. Capital Four Management A/S, Denmark;2. Department of Finance, Copenhagen Business School, Solbjerg Plads 3, DK-2000 Frederiksberg, Denmark;3. Department of Economics, Aarhus BSS, Aarhus University, Denmark |
| |
Abstract: | We verify the effects of sovereign rating revisions on the activity of European banks, in terms of their regulatory capital ratio, profitability, liquidity, and lending supply. First, we find that a sovereign downgrade has a significant impact, primarily on capital ratios and lending supply. In contrast, upgrades do not have a significant impact, indicating an asymmetric effect of sovereign rating changes. Second, we find that three transmission channels (assets channel, funding channel, and rating channel) explain a relevant part of the impact of a sovereign downgrade. Finally, we find strong evidence that the rating-based regulation affects all measures of the activity of domestic banks, causing negative externalities for financial institutions. Our results hold also controlling for sovereign risk, estimating a GMM system, and employing an instrumental variable approach. |
| |
Keywords: | |
本文献已被 ScienceDirect 等数据库收录! |
|