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Sovereigns and Financial Intermediaries Spillovers

By: Mr.Hamid R Tabarraei,Abdelaziz Rouabah,Olivier Pierrard

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Sovereigns and Financial Intermediaries Spillovers

By: Mr.Hamid R Tabarraei,Abdelaziz Rouabah,Olivier Pierrard

We examine the spillover effects between sovereigns and banks in a model with a heterogeneous banking system. An increase in sovereign’s default risk affects financial intermediaries through two channels in this model. First, banks’ funding costs might increase, inducing higher interest rates on loans and bonds and a cut back in these assets. Second, financial regulator’s risk-weighted asset framework would assign higher weights to lower quality assets, implying a portfolio rebalancing and more deleveraging. While capital adequacy requirements weaken the impact of shocks emerging from the real economy, they amplify the effect of shocks on banks’ balance sheets.

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Page Count

33

Publisher

International Monetary Fund

Published Date

ISBN 10

1498301754

ISBN 13

9781498301756

Sovereigns and Financial Intermediaries Spillovers

By: Mr.Hamid R Tabarraei,Abdelaziz Rouabah,Olivier Pierrard

Write a review Read reviews Take a Quiz Solve Book Puzzle

Sovereigns and Financial Intermediaries Spillovers

By: Mr.Hamid R Tabarraei,Abdelaziz Rouabah,Olivier Pierrard

We examine the spillover effects between sovereigns and banks in a model with a heterogeneous banking system. An increase in sovereign’s default risk affects financial intermediaries through two channels in this model. First, banks’ funding costs might increase, inducing higher interest rates on loans and bonds and a cut back in these assets. Second, financial regulator’s risk-weighted asset framework would assign higher weights to lower quality assets, implying a portfolio rebalancing and more deleveraging. While capital adequacy requirements weaken the impact of shocks emerging from the real economy, they amplify the effect of shocks on banks’ balance sheets.

Average ratings

N/A

5

0%

4

0%

3

0%

2

0%

1

0%

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Solve jigsaw puzzle

Age

Page Count

33

Publisher

International Monetary Fund

Published Date

ISBN 10

1498300707

ISBN 13

9781498300704

Book's by Olivier Pierrard

Sovereigns and Financial Intermediaries Spillovers

Sovereigns and Financial Intermediaries Spillovers

Sovereigns and Financial Intermediaries Spillovers

Sovereigns and Financial Intermediaries Spillovers

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