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The Effects of the COVID-19 Pandemic Through the Lens of the CDS Spreads

Alin Marius Andrieș    “Alexandru Ioan Cuza” University of Iași; Institute for Economic Forecasting; Romanian Academy, Romania    

Steven Ongena    University of Zurich, Switzerland; Swiss Finance Institute; KU Leuven and CEPR    

Nicu Sprincean    “Alexandru Ioan Cuza” University of Iași, Romania



In this paper we are analysing the impact of the general lockdown measures imposed in Italy in the context of the COVID-19 pandemic on European banks’ CDS spreads. Compared to the impact of the COVID-19 pandemic on sovereign risk, we find little evidence of increased bank risk following the event. However, investors’ reaction was clearly negative in longer time frames. In addition, we quantify the feedback loop between sovereign and bank risk and document an increased interconnectedness between sovereigns and banks during the current health crisis, however with a smaller magnitude comparing to the sovereign debt crisis. Banks are now more resilient to shocks, being a direct consequence of the post-crisis regulatory framework.

July 31, 2020
June 30, 2020
June 3, 2020

Keywords: Spillover effectsCOVID-19 pandemicBank riskCountry risk

Copyright: © 2020 Alin Marius Andrieș, Steven Ongena, Nicu Sprincean. This is an open-access work distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction is permitted, provided that the original author(s) and the copyright owner(s) are credited and that the original publication is cited, in accordance with accepted academic practice. The license allows for commercial use. No use, distribution or reproduction is permitted which does not comply with these terms.