The article examines causal relationships between sovereign credit default swaps (CDS) prices for the BRICS and most important EU economies (Germany, France, the UK, Italy, Spain) during the European debt crisis. The cross-correlation function (CCF) approach used in the research distinguishes between causality-in-mean and causality-in-variance. In both causality dimensions, the BRICS CDS prices tend to Granger cause those of the EU counterparts with the exception of Germany. Italy and Spain exhibit the highest dependence on the BRICS, whereas only India has a negative balance of outgoing and incoming causal linkages among the BRICS. Thus, the paper underscores the signs of decoupling effects in the sovereign CDS market and also supports the view that the European debt crisis has so far had a limited non-EU impact in this market.

Descriptive statistics for the bank and sovereign CDS spreads, the bank and country variables and the market variables.

We investigate the effectiveness of the Bank Recovery and Resolution Directive (BRRD) in mitigating the transmission of credit risk from banks to their sovereign, using CDS spreads to capture bank and sovereign credit risk for a sample of 43 banks in 8 Euro Area countries over the period 2009–2020. If the BRRD bail-in framework is credible, changes in bank default risk should not be transmitted to sovereign risk. In a novel approach we use banks earnings announcements to identify exogenous shocks to bank credit risk and investigate to what extent bank risk is transmitted to sovereign risk before and during the BRRD era. We find that bank-to-sovereign risk transmission has diminished after the introduction of the BRRD, suggesting that financial markets judge the BRRD framework as credible. The decline in bank-sovereign risk transmission is particularly significant in the periphery Euro Area countries, especially Italy and Spain, where the bank-sovereign nexus was most pronounced during the sovereign debt crisis. We report that the lower bank-to-sovereign credit risk transmission is associated with the parliamentary approval of the BRRD and not with the OMT program launched by the ECB to affect sovereign yield spreads, nor with specific bail-in or bailout cases which occurred during the BRRD era. Finally, we document that the reduction in risk transmission is most pronounced for banks classified as a Global Systemically Important Bank (G-SIB), stressing the importance of additional capital buffers imposed by Basel III.

Standard errors in parentheses are clustered at the bank level. *** represents significance at the 1% percent level.

Standard errors in parentheses are clustered at the bank level. *, ** and *** represents significance at the 10%, 5% and 1% percent level, respectively.

Standard errors in parentheses are clustered at the bank level. *, ** and *** represent significance at the 10%, 5% and 1% percent level, respectively.

Panel A displays the results for the BRRD dummy from 15/04/2014 onwards, panel B shows the findings when considering 01/01/2016 as the BRRD implementation. Standard errors in parentheses are clustered at the bank level. *** represents significance at the 1% percent level.

The yield on Romania 10Y Bond Yield rose to 7.28% on July 31, 2025, marking a 0.03 percentage point increase from the previous session. Over the past month, the yield has fallen by 0.17 points, though it remains 0.63 points higher than a year ago, according to over-the-counter interbank yield quotes for this government bond maturity. Romania 10-Year Government Bond Yield - values, historical data, forecasts and news - updated on July of 2025.

The table displays the findings when considering 15/04/2014 as the BRRD implementation. Standard errors in parentheses are clustered at the bank level. *** represents significance at the 1% percent level.

Standard errors in parentheses are clustered at the bank level. *, ** and *** represent significance at the 10%, 5% and 1% percent level, respectively.

The yield on Colombia 10Y Bond Yield eased to 11.77% on July 29, 2025, marking a 0.08 percentage point decrease from the previous session. Over the past month, the yield has fallen by 0.48 points, though it remains 1.18 points higher than a year ago, according to over-the-counter interbank yield quotes for this government bond maturity. Colombia 10-Year Government Bond Yield - values, historical data, forecasts and news - updated on July of 2025.