How has the feedback loop between banks and sovereigns changed since the crisis years?
JulkaisusarjaBank of Finland. Bulletin
JulkaisijaBank of Finland
Julkaisun pysyvä osoite onhttps://urn.fi/URN:NBN:fi:bof-201805171561
One aim of Banking Union is to weaken the feedback loop between banks and their sovereigns so that increases in banks’ credit risk would no longer be reflected in sovereign credit risk and, conversely, banks’ financing costs would no longer be driven by their sovereign's creditworthiness. Currently, for banks and sovereigns alike, credit risk insurance costs much less than during the crisis. Although the bank-sovereign nexus has weakened, the feedback loop cannot be considered to be broken.