Cover IMF Working Papers
Buy Book in Print
The Sovereign-Bank Nexus in Emerging Markets in the Wake of the COVID-19 Pandemic
Author:
Andrea Deghi https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Andrea Deghi in
Current site
Google Scholar Close
,
Mr. Salih Fendoglu
Search for other papers by Mr. Salih Fendoglu in
Current site
Google Scholar Close
,
Tara Iyer https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Tara Iyer in
Current site
Google Scholar Close
,
Mr. Hamid R Tabarraei
Search for other papers by Mr. Hamid R Tabarraei in
Current site
Google Scholar Close
,
Yizhi Xu https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Yizhi Xu in
Current site
Google Scholar Close
, and
Mustafa Yenice https://isni.org/isni/0000000404811396 International Monetary Fund

Search for other papers by Mustafa Yenice in
Current site
Google Scholar Close
Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 223
Language:
English
Publication Date:
11 Nov 2022
DOI:
https://doi.org/10.5089/9798400222382.001
ISBN:
9798400222382
ISSN:
1018-5941
Pages:
54
Keywords:
Sovereign-bank nexus; emerging markets; financial stability; sovereign risk; COVID-19; banking sector; corporate investment; outcome variable; Annex I. data description; summary statistics; Emerging and frontier financial markets; Capital adequacy requirements; Commercial banks; Credit default swap; Global
Download PDF (1.3 MB) Download Epub
The COVID-19 pandemic has brought the relationship between sovereigns and banks—the so-called sovereign-bank nexus—in emerging market economies to the fore as bank holdings of domestic sovereign debt have surged. This paper examines the empirical relevance of this nexus to assess how it could amplify macro-financial stability risks. The findings show that an increase in sovereign credit risk can adversely affect banks’ balance sheets and credit supply, especially in countries with less-well-capitalized banking systems. Sovereign distress can also impact banks indirectly through the nonfinancial corporate sector by constraining their funding and reducing their capital expenditure. Notably, the effects on banks and corporates are strongly nonlinear in the size of the sovereign distress.
  • Collapse
  • Expand
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund