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Working Paper
When and for Whom Does the Sovereign-Bank Nexus Matter? Evidence from Post-Crisis Europe
We study whether sovereign risk continues to affect banks a decade after Europe began reshaping its financial architecture. Combining daily bank and sovereign credit default swap spreads with supervisory data on banks' domestic sovereign portfolios, we show that the sovereign-bank relationship remains economically meaningful but is highly conditional. Banks with larger sovereign holdings respond more sharply to home-sovereign risk, and this amplification is substantially stronger for mark-to-market than amortized-cost exposures, consistent with more immediate recognition of valuation losses. ...