Source: - Emerald
Published: - 2012
Author(s):- James R. Barth, Apanard Penny Prabhavivadhana, Greg Yun
The research paper I have chosen to describe and critically review is heavily based upon the Euro, and the financial crisis it has experienced of late. The title of my research paper is “The Euro Zone Financial Crisis: Role of interdependencies between Bank and Sovereign Risk” Written by James R. Barth of Auburn University et al. The purpose of this paper is to discuss and then analyze the interdependency between bank and sovereign risk, before, during and after the financial crisis.
I decided to choose this particular research paper because the topic of The Euro zone financial crisis interests and appeals to me greatly! This is because this financial crisis doesn’t just affect the countries within the Euro zone but is in fact affecting us all, for example Interests rates within many of the UK’s banks is low in an attempt to increase consumer spending and reduce the amount people are saving with the idea of increased spending resulting in GDP increasing along with employment with the long term goal of recovery from the crisis as a result.
This interest for the Euro zone financial crisis became apparent after being set the task of researching and giving a presentation on the causes and impacts of the financial crisis within my previous semester’s module “European Business in a global context.” I also got the chance to extend this interest by writing an assignment on, “Identifying and discussing the EU’s response to the current crisis in the Euro zone.” This broadened my knowledge and increased my interest for the crisis further, thus I chose this 2012 research paper accessed on Emerald.
Within this Research paper 44 large banks headquartered within 13 different countries were examined with the sole purpose of discussing and then analyzing the interdependency between bank and sovereign risk before, during and after the Euro financial crisis. 8 of these 13 different countries were in fact members of the European Union within 7 of these 8 being part of the Euro currency with the remainder of countries examined not being in either category providing a good comparison group of countries. From carrying out the research to find the Role of Interdependencies between Bank and Sovereign risk, the researchers found evidence supporting the existence of significant bank and sovereign risk linkages. It has been discovered that there is however, different patterns in the relationships across countries and even across banks within the same country. As well as this, higher correlation between bank and sovereign risk are found in countries in which the ratio of the assets of banks relative to their home country’s GDP is relatively high.
This Research Paper has a main title, “The Euro zone Financial Crisis: Role of Interdependencies between Bank and Sovereign Risk” with many sub-questions and hypotheses being fed off this. The main topic of the paper is The Euro zone Financial Crisis (European Economics), with the sub-questions within this research paper being, “What are Sovereign risk and Bank Capital requirements?” “What are Bank and Sovereign risk linkages?” And “How Bank and Sovereign risk linkages depend on Bank size, Foreign Diversification and Exposure.” In conclusion to the Research paper, and a summary of what was discovered, based upon the results found, allowing banks to invest in sovereign debt without requiring them to hold any capital against the “true” risk of such debt increases the likelihood of insolvency. This means that the interdependencies between bank and sovereign risk are extremely important when setting regulatory capital requirements and considering whether action is...