| In the end of 2009, Greek government fiscal crisis broke out. Afterwards, rating agencies downgraded Greece’s sovereign credit rating, and then became the start point of the recent European sovereign debt crisis. During the crisis, the monetary integration policy of European Union accelerated the rate of diffusion from Greece to other euro zone countries, eventually spread to the entire euro zone. Generally, Eurozone banks always hold a large number of euro-zone government bonds. As the European debt crisis further developed and became more serious, the increased sovereign risk caused by the European sovereign debt crisis began to increase the risk of the European banking industry. The stocks of the European banks fell sharply, as well as the credit default swaps suffer sharp rises. Early October 2010, one of the major European banks-Dexia became the first commercial banks receiving government assistance during the European debt crisis.Commercial banks, as the core of a country’s financial system, play key roles in optimizing the allocation of funds in the process of economic development. However, commercial banks essentially have special balance sheet structures and risk characteristics. As soon as the crisis brake out, commercial banks bear the brunt, and then form a strong contagion among the banking industry. In the European debt crisis, the interaction of the sovereign debt crisis, the real economy recession and the banking crisis contributed to the spread of the breadth and extent of the crisis recession, and also brought obstacles to the economic recovery of Europe. Therefore, this article regards the bank risk caused by the European debt crisis as a starting point, which provides a unique view to analyze the influence of this sovereign debt crisis.Firstly, based on current research literatures, in order to explore the relationship between the debt crisis and bank risk, this paper proposes the following hypotheses: first, the country’s sovereign risk increases will lead to bank risk increases; second, the European debt crisis bring structural change to such relationship between sovereign risk and bank risk; third, the effect of the European debt crisis on European banks has presented a cross-border feature; fourth, the influence of the European sovereign debt crisis on bank risk has three mechanisms:the government debt exposure, the financial instability effect and the regional effect.Secondly, this paper selects the sample of European banks according to the list of European bank released by the stress test conducted by European Banking Authority, and use the credit default swaps (CDS) premium as the empirical measurement of the sovereign risk and bank risk. Then, apply appropriate regression models to assumptions above empirically verify the above assumptions and divide the empirical test into two parts. In the first part, applying a sample of Greek banks to the model, the least squares estimation results support that the Greek bank risk and sovereign risk do have a co-movement trend. The breakpoint test indicates that the European sovereign debt crisis do cause structural change to the above relationship. Then, introduce the German bank sample into the model, combines with Greek sovereign CDS premium as the indicator of the European debt crisis and conclude that potential cross-border effect exists. To further verify the above conclusion, this paper integrates Greece, Ireland, Italy, Portugal and Spain data into a panel data sample, use individual and point fix model estimation and obtain the same conclusion, get Greek sample under the same conclusion. In the second part, based on Angeloni and Wolff’s (2012 model, add financial stability variable FSI and dummy variable GIlPS into model. Estimation results show that the financial instability effect is hardly significant, the regional effect is always significant, while the debt exposure effect and the regional effects are jointly significant.Finally, referring to the results of above empirical analysis, this paper proposes some appropriate policy recommendations for euro-zone countries, the European banking sector and EU regulators. Euro governments have a responsibility to ensure a healthy fiscal space and a reasonable financing level; European banks should avoid singly holding own sovereign bonds as assets and reduce risk by diversifying the holding of government debts; EU regulators should aim to improve the cooperation in fiscal policies and economic policies among member countries, and the establish a united banking supervision system to ensure that the financial markets function effectively. |
