Fragmentation of wholesale funding markets – an empirical approach to measure country-specific risk premia in banks’ bond spreads

Author (Corporate)
Series Title
Series Details No.32, May 2014
Publication Date May 2014
ISBN 978-92-79-35336-9
ISSN 1831-4473
EC KC-AY-14-032-EN-N
Content Type

This paper presents empirical evidence that euro-area wholesale banking markets have become fragmented along national boundaries. The estimations identify a significant premium in the range 60-170 basis points on issued debt that banks have paid to investors if they are located in Spain, Ireland or Italy. . Portuguese and Greek banks paid a premium up to 170 respectively 200 basis points due to the impact of sovereign risk on market fragmentation. The premium for banks in other core countries is in the ballpark of around 30 to 60 basis points. The coefficients should be read as an average risk premium over the period mid-2010 to January 2014 that banks have to pay more than banks located in Germany. For the pre-crisis period 2003-2010, coefficients were generally insignificant or much lower.

Source Link Link to Main Source http://dx.publications.europa.eu/10.2765/72740
Countries / Regions