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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

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abstract

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.

Pubblicato
31 Luglio 2020
Accettato
30 Giugno 2020
Presentato
03 Giugno 2020
Lingua
EN
ISBN (EBOOK)
978-88-6969-442-4