Intertwined Sovereign and Bank Solvencies in a Model of Self-Fulfilling Crisis [electronic resource] / Gustavo Adler.
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TextSeries: IMF Working Papers; Working Paper ; No. 12/178Publication details: Washington, D.C. : International Monetary Fund, 2012Description: 1 online resource (29 p.)ISBN: 1475505264 :ISSN: 1018-5941Subject(s): Bond | Bonds | Domestic Borrowing | Domestic Debt | Financial Intermediaries | Financial Markets and the Macroeconomy | ArgentinaAdditional physical formats: Print Version:: Intertwined Sovereign and Bank Solvencies in a Model of Self-Fulfilling CrisisOnline resources: IMF e-Library | IMF Book Store Abstract: Large fiscal financing needs, both in advanced and emerging market economies, have often been met by borrowing heavily from domestic banks. As public debt approached sustainability limits in a number of countries, however, high bank exposure to sovereign risk created a fragile inter-dependence between fiscal and bank solvency. This paper presents a simple model of twin (sovereign and banking) crisis that stresses how this interdependence creates conditions conducive to a self-fulfilling crisis.
Large fiscal financing needs, both in advanced and emerging market economies, have often been met by borrowing heavily from domestic banks. As public debt approached sustainability limits in a number of countries, however, high bank exposure to sovereign risk created a fragile inter-dependence between fiscal and bank solvency. This paper presents a simple model of twin (sovereign and banking) crisis that stresses how this interdependence creates conditions conducive to a self-fulfilling crisis.
Description based on print version record.
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