Does the European Financial Stability Facility bail out sovereigns or banks? An event study

Balint L Horvath, Harry Huizinga

Research output: Contribution to journalArticle (Academic Journal)peer-review

8 Citations (Scopus)
289 Downloads (Pure)

Abstract

On May 9, 2010 euro zone countries announced the creation of the European Financial Stability Facility as a response to the sovereign debt crisis. This paper investigates the impact of this announcement on bank share prices, bank CDS spreads and sovereign CDS spreads. The main private beneficiaries were bank creditors, especially of banks heavily exposed to southern Europe and Ireland. 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
Number of pages30
JournalJournal of Money, Credit and Banking
Volume47
Issue number1
Early online date23 Jan 2015
DOIs
Publication statusPublished - 1 Feb 2015

Structured keywords

  • AF Banking

Keywords

  • G21
  • G28
  • H63
  • bailout
  • banking
  • CDS spreads
  • sovereign debt

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