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Bank regulation and sovereign risk : a paradox
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Autores
Orientador(es)
Resumo(s)
This paper investigates the impact of banking prudential regulation on sovereign risk.
We show that prudential regulation reduces sovereign risk and induces governments to
spend more. As a result, countries with tight prudential regulation have lower primary
budget balances and accumulate more government debt over time. This means that
prudential regulation reduces private debt, while paradoxically increasing government
debt. We explore several explanations for this paradox. Our results suggest that prudential
regulation enables governments to accumulate debt because they improve the
nation’s credit rating and its borrowing conditions in sovereign bond markets.
Descrição
Palavras-chave
bank regulation fiscal policy macroprudential policy sovereign debt sovereign risk
Contexto Educativo
Citação
Afonso, António e André Teixeira (2023). "Bank regulation and sovereign risk : a paradox". REM Working paper series, nº 0272/2023
Editora
ISEG - REM - Research in Economics and Mathematics