Does the European financial stability bail out sovereigns or banks: An event study

Bálint Horváth, Harry Huizinga

Research output: Contribution to journalArticleScientificpeer-review

8 Citations (Scopus)

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

Keywords

  • bailout
  • banking
  • CDS spreads
  • sovereign debt

Fingerprint Dive into the research topics of 'Does the European financial stability bail out sovereigns or banks: An event study'. Together they form a unique fingerprint.

  • Cite this