New evidence on banks and sovereign default risk
Regardless of the relevance of the phenomena, there is little systematic evidence on them. In recent work (Gennaioli et al. 2014b), we make an effort to fill this gap by documenting the hyperlink between public default, bank bondholdings, and loans. We utilize the BANKSCOPE dataset, which gives us with information on the bondholdings and characteristics of over 20,000 banks in 191 countries and 20 sovereign default episodes between 1998 and 2012. We address two broad questions:
1. Does banks’ contact with sovereign risk affect lending? Specifically, do the banks that hold more public bonds exhibit a more substantial fall in loans when their government defaults?