The Sovereign-Bank Nexus in EMDEs : What Is It, Is It Rising, and What Are the Policy Implications?

The Sovereign-Bank Nexus in EMDEs : What Is It, Is It Rising, and What Are the Policy Implications?

This paper explores the sovereign-bank nexus in emerging markets and developing economies: the interconnectedness between the health of the sovereign and the banking system. Data from 140 emerging markets and developing economies suggest that this...

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Main Authors: Feyen, Erik, Zuccardi, Igor
Format: Working Paper
Language:English
Published: World Bank, Washington, DC 2019
Subjects:
BANKING SYSTEM
SOVEREIGN DEBT
EMERGING MARKET ECONOMIES
FISCAL TRENDS
PUBLIC DEBT
BANK EXPOSURE
DEFAULT RISK
Online Access:http://documents.worldbank.org/curated/en/531061564493159669/The-Sovereign-Bank-Nexus-in-EMDEs-What-Is-It-Is-It-Rising-and-What-Are-the-Policy-Implications
http://hdl.handle.net/10986/32152
id okr-10986-32152
recordtype oai_dc
spelling okr-10986-321522022-09-20T00:12:46Z The Sovereign-Bank Nexus in EMDEs : What Is It, Is It Rising, and What Are the Policy Implications? Feyen, Erik Zuccardi, Igor BANKING SYSTEM SOVEREIGN DEBT EMERGING MARKET ECONOMIES FISCAL TRENDS PUBLIC DEBT BANK EXPOSURE DEFAULT RISK This paper explores the sovereign-bank nexus in emerging markets and developing economies: the interconnectedness between the health of the sovereign and the banking system. Data from 140 emerging markets and developing economies suggest that this nexus is rising. First, banks have increased their exposure to their sovereigns in the past decade. Second, government debt has grown, and fiscal positions have deteriorated, raising the specter of sovereign stress. Third, banking system assets and bank credit to the private sector have steadily increased, which may restrict the sovereign's capacity to contain a banking crisis. Fourth, empirical evidence from 36 emerging markets and developing economies documents the existence of the nexus and suggests that it has increased recently. However, deeper country analysis is required for a better understanding of the sovereign-bank nexus, given country idiosyncrasies, including the structure of sovereign debt and the composition of the investor base, and data lags and opacities. To minimize the adverse effects of the sovereign-bank nexus, efforts should be focused on maintaining fiscal and bank buffers, strengthening surveillance and supervision of the banking system, improving transparency and data quality of bank-sovereign linkages, better addressing the regulatory treatment of the sovereign exposures and government support of the banking sector, and carefully evaluating the policy trade-offs in the sovereign-bank nexus. 2019-08-01T21:25:08Z 2019-08-01T21:25:08Z 2019-07 Working Paper http://documents.worldbank.org/curated/en/531061564493159669/The-Sovereign-Bank-Nexus-in-EMDEs-What-Is-It-Is-It-Rising-and-What-Are-the-Policy-Implications http://hdl.handle.net/10986/32152 English Policy Research Working Paper;No. 8950 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper
repository_type Digital Repository
institution_category Foreign Institution
institution Digital Repositories
building World Bank Open Knowledge Repository
collection World Bank
language English
topic BANKING SYSTEM
SOVEREIGN DEBT
EMERGING MARKET ECONOMIES
FISCAL TRENDS
PUBLIC DEBT
BANK EXPOSURE
DEFAULT RISK
spellingShingle BANKING SYSTEM
SOVEREIGN DEBT
EMERGING MARKET ECONOMIES
FISCAL TRENDS
PUBLIC DEBT
BANK EXPOSURE
DEFAULT RISK
Feyen, Erik
Zuccardi, Igor
The Sovereign-Bank Nexus in EMDEs : What Is It, Is It Rising, and What Are the Policy Implications?
relation Policy Research Working Paper;No. 8950
description This paper explores the sovereign-bank nexus in emerging markets and developing economies: the interconnectedness between the health of the sovereign and the banking system. Data from 140 emerging markets and developing economies suggest that this nexus is rising. First, banks have increased their exposure to their sovereigns in the past decade. Second, government debt has grown, and fiscal positions have deteriorated, raising the specter of sovereign stress. Third, banking system assets and bank credit to the private sector have steadily increased, which may restrict the sovereign's capacity to contain a banking crisis. Fourth, empirical evidence from 36 emerging markets and developing economies documents the existence of the nexus and suggests that it has increased recently. However, deeper country analysis is required for a better understanding of the sovereign-bank nexus, given country idiosyncrasies, including the structure of sovereign debt and the composition of the investor base, and data lags and opacities. To minimize the adverse effects of the sovereign-bank nexus, efforts should be focused on maintaining fiscal and bank buffers, strengthening surveillance and supervision of the banking system, improving transparency and data quality of bank-sovereign linkages, better addressing the regulatory treatment of the sovereign exposures and government support of the banking sector, and carefully evaluating the policy trade-offs in the sovereign-bank nexus.
format Working Paper
author Feyen, Erik
Zuccardi, Igor
author_facet Feyen, Erik
Zuccardi, Igor
author_sort Feyen, Erik
title The Sovereign-Bank Nexus in EMDEs : What Is It, Is It Rising, and What Are the Policy Implications?
title_short The Sovereign-Bank Nexus in EMDEs : What Is It, Is It Rising, and What Are the Policy Implications?
title_full The Sovereign-Bank Nexus in EMDEs : What Is It, Is It Rising, and What Are the Policy Implications?
title_fullStr The Sovereign-Bank Nexus in EMDEs : What Is It, Is It Rising, and What Are the Policy Implications?
title_full_unstemmed The Sovereign-Bank Nexus in EMDEs : What Is It, Is It Rising, and What Are the Policy Implications?
title_sort sovereign-bank nexus in emdes : what is it, is it rising, and what are the policy implications?
publisher World Bank, Washington, DC
publishDate 2019
url http://documents.worldbank.org/curated/en/531061564493159669/The-Sovereign-Bank-Nexus-in-EMDEs-What-Is-It-Is-It-Rising-and-What-Are-the-Policy-Implications
http://hdl.handle.net/10986/32152
_version_ 1764475907243769856

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