Bad Sovereign or Bad Balance Sheets? Euro Area Interbank Fragmentation and Monetary Policy, 2011-15

Federal Reserve Bank of Boston Working Paper

55 Pages Posted: 29 Mar 2018 Last revised: 20 Nov 2018

See all articles by Silvia Gabrieli

Silvia Gabrieli

Banque de France

Claire Labonne

Federal Reserve Banks - Federal Reserve Bank of Boston

Date Written: November 9, 2018

Abstract

Does the funding cost differential between peripheral and non-peripheral European banks reflect poor quality of banks’ assets (credit risk)? Or the quality of sovereign support in case of failure (sovereign-dependence risk)? Combining bank-to-bank loan data with supervisory information on banks’ cross-border exposures, we disentangle the role of sovereign-dependence risk and credit risk in the euro area interbank market fragmentation from 2011 to 2015. Before the announcement of OMTs, high non-performing loan ratios on the GIIPS portfolio hindered banks’ access to the interbank market and large sovereign bond holdings raised interbank rates. The OMT and TLTROs reduced both channels of fragmentation.

Keywords: Interbank Market, Credit Risk, Fragmentation, Sovereign Risk, Credit Rationing, Market Discipline

JEL Classification: G01, E43, E58, G15, G21

Suggested Citation

Gabrieli, Silvia and Labonne, Claire, Bad Sovereign or Bad Balance Sheets? Euro Area Interbank Fragmentation and Monetary Policy, 2011-15 (November 9, 2018). Federal Reserve Bank of Boston Working Paper , Available at SSRN: https://ssrn.com/abstract=3152481 or http://dx.doi.org/10.2139/ssrn.3152481

Silvia Gabrieli

Banque de France ( email )

32 rue Croix des Petits Champs
Paris, 75001
France

Claire Labonne (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
74
Abstract Views
632
Rank
576,524
PlumX Metrics