Ricardo Correa

TL;DR: The impact of sovereign risk concerns on the cost and availability of bank funding over recent years is discussed in this article, where the authors focus on causality going from sovereigns to banks, as is already the case in some countries and, looking forward, is a possible scenario for other economies.

TL;DR: In this article, the authors designed a systemic risk measure for the European banking system as a hypothetical distress insurance premium (DIP), which integrates economically the main characteristics of systemic risk such as size, default probability, and interconnectedness.

Abstract: Banking crises have been largely associated with la rge output and welfare losses, and bank bailouts by the public sector are a recurring feature of financial crises. Such stylized facts underscore the importance of a well- functioning financial system for attaining economic stability and growth, as well as the relevance of understanding the relationship between the economic conditions fa ced by the government and the banking sector. In particular, differences and cha nges in explicit (and implicit) government support to banks may affect investors’ i ncentives to hold bank stocks, and thus impact banks’ external financing costs, wh ich may send ripples through the rest of the economy. Similarly, sovereign debt rat ing changes may unveil new information about a country’s fundamentals, generat ing a significant externality for the country’s banking system, and thus they also af fect investors’ incentives to hold bank stocks. We explore the joint impact of sovere ign debt rating changes and government support on bank stock returns from 36 countries between 1995 and 2011. Our findings show that sovereign rating chan ges have a significant and robust impact on bank stock returns. The impact is nonlin ear and varies across banks and countries. Moreover, we find that the effect is as ymmetric and stronger for downgrades than for upgrades, and that large downgr ades have a particularly strong negative impact on returns. Importantly, this resu lt is significantly stronger for banks with more ex-ante government support, providing evidence that investors perceive sovereigns and domestic banks as markedly interconnected.

TL;DR: In this paper, the authors present a new database that focuses on changes in the intensity in the usage of several widely used prudential tools, taking into account both macro-prudential and micro-priential objectives.

TL;DR: This paper found evidence that, following the adoption of say on pay (SoP) laws, chief executive officer (CEO) pay growth rates decline and the sensitivity of CEO pay to firm performance improves.