We propose a simple model of the sovereign-bank diabolic loop, and establish four results.
First, the diabolic loop can be avoided by restricting banks' domestic sovereign exposures …

Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the
determinants of banks' sovereign exposures and their effects on lending during and after the …

Banks are intrinsically fragile because of their role as liquidity providers. This results in
under-provision of liquidity. We analyze the effect of government guarantees on the …

The design of lender-of-last-resort interventions can exacerbate the bank-sovereign nexus.
During sovereign crises, central bank provision of long-term liquidity incentivizes banks to …

This article studies the interaction of government debt and financial markets. This interaction,
termed a “diabolic loop,” is driven by government choice to bail out banks and the resulting …

The article analyses the empirical relationship between bank credit risk and sovereign credit
risk in the euro area, using a system of simultaneous equations identified through …

Abstract Contingent Convertible (CoCo) bonds are subject to a considerable theoretical and
practical debate. This article presents a systematic literature survey from five databases …

This paper investigates the association between systemic risk and sovereign credit ratings
issued by the three credit rating agencies (CRAs), ie, Moody's, S&P, and Fitch, for 65 …

This study empirically examines the spatial correlation of implicit debt tail risks among local
governments across provinces in China and its impact on systemic risks within the banking …

I develop a model where governments might prefer to have an undercapitalized domestic
financial sector during crises. Weak banks optimally tilt their sovereign bond portfolio …