ECB highlights new channel reinforcing sovereign-bank nexus
State guarantees indirectly increase banks’ exposure to sovereign risks through corporates
The sovereign-bank nexus in the eurozone is being reinforced through state guarantees, the European Central Bank said today (November 25).
The ECB’s Financial stability review stresses that governments’ guarantees offered this year in a bid to support viable businesses may imperil financial stability over the medium term.
“The significant rise of sovereign indebtedness resulting from the fiscal response to the pandemic, while necessary to avoid economic collapse, could give rise to the
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