Does the European financial stability bail out sovereigns or banks

An event study

Bálint Horváth, Harry Huizinga

Research output: Contribution to journalArticleScientificpeer-review

Abstract

On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility. This paper investigates the impact of this announcement on bank share prices, bank credit default swap (CDS) spreads, and sovereign CDS spreads. The main private beneficiaries were bank creditors. Furthermore, countries with banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their banks’ sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value.
Original languageEnglish
Pages (from-to)177-206
JournalJournal of Money, Credit and Banking
Volume47
Issue number1
DOIs
Publication statusPublished - 23 Jan 2015

Fingerprint

Bailout
Event study
Financial stability
Credit default swap (CDS) spreads
Ireland
Share prices
Announcement
Financial safety net
Bank debt
Banking system
Contingent claims
Shareholders
Sovereign debt
Bank credit
Euro zone

Keywords

  • bailout
  • banking
  • CDS spreads
  • sovereign debt

Cite this

@article{a6e87e1ecc8d4f128a9e0203f57876c4,
title = "Does the European financial stability bail out sovereigns or banks: An event study",
abstract = "On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility. This paper investigates the impact of this announcement on bank share prices, bank credit default swap (CDS) spreads, and sovereign CDS spreads. The main private beneficiaries were bank creditors. Furthermore, countries with banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their banks’ sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value.",
keywords = "bailout, banking, CDS spreads, sovereign debt",
author = "B{\'a}lint Horv{\'a}th and Harry Huizinga",
year = "2015",
month = "1",
day = "23",
doi = "10.1111/jmcb.12173",
language = "English",
volume = "47",
pages = "177--206",
journal = "Journal of Money, Credit and Banking",
issn = "0022-2879",
publisher = "Wiley-Blackwell",
number = "1",

}

Does the European financial stability bail out sovereigns or banks : An event study. / Horváth, Bálint; Huizinga, Harry.

In: Journal of Money, Credit and Banking, Vol. 47, No. 1, 23.01.2015, p. 177-206.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Does the European financial stability bail out sovereigns or banks

T2 - An event study

AU - Horváth, Bálint

AU - Huizinga, Harry

PY - 2015/1/23

Y1 - 2015/1/23

N2 - On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility. This paper investigates the impact of this announcement on bank share prices, bank credit default swap (CDS) spreads, and sovereign CDS spreads. The main private beneficiaries were bank creditors. Furthermore, countries with banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their banks’ sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value.

AB - On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility. This paper investigates the impact of this announcement on bank share prices, bank credit default swap (CDS) spreads, and sovereign CDS spreads. The main private beneficiaries were bank creditors. Furthermore, countries with banking systems heavily exposed to southern Europe and Ireland benefited, as evidenced by lower sovereign CDS spreads. The combined gains of bank debt holders and shareholders exceed the increase in the value of their banks’ sovereign debt exposures, suggesting that banks saw their contingent claim on the financial safety net increase in value.

KW - bailout

KW - banking

KW - CDS spreads

KW - sovereign debt

U2 - 10.1111/jmcb.12173

DO - 10.1111/jmcb.12173

M3 - Article

VL - 47

SP - 177

EP - 206

JO - Journal of Money, Credit and Banking

JF - Journal of Money, Credit and Banking

SN - 0022-2879

IS - 1

ER -