Sovereign default risk affects bank assets – Bank of Italy paper
Researchers look at data on bank assets from 15 countries from 2004–18
Markets place premiums on the assets of banks based in countries seen as being at risk of sovereign default, a working paper published by the Bank of Italy finds.
In Risky bank guarantees, Taneli Mäkinen, Lucio Sarno and Gabriele Zinna use a dataset on bank asset returns for 15 countries from 2004–18. They apply standard portfolio-sort techniques to analyse the data, ranking banks first by their risk and then by the deposit-to-GDP ratio.
This ranking, the authors argue, gives them “a measure
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