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

Pui Han, Winnie POON, Jianfu SHEN, John E, BURNETT

Research output: Journal PublicationsJournal Article (refereed)

2 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)281-302
Number of pages22
JournalFinancial Review
Volume52
Issue number2
Early online date3 Apr 2017
DOIs
Publication statusPublished - May 2017

Bibliographical note

Poon acknowledges a research grant (DR12B7) from Lingnan University, Hong Kong.

Keywords

  • bank credit ratings
  • sovereign credit ratings
  • spillover effects
  • credit rating agencies

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