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Impacts of the sovereign risk perception on financial stability: Evidence from Brazil

Tipo
Artigos

Ano
02/08/2021

Linha de Pesquisa
Administração e Economia de Negócios

Autor(es)
Gabriel Caldas Montes, Matheus Valladares, Claudio Oliveira de Moraes

Orientador

https://doi.org/10.1016/j.qref.2021.06.010


The Quarterly Review of Economics and Finance, v. 81, pp. 358-369. Abstract: Credit Rating Agencies (CRAs) provide credit information related to sovereign bonds and play a crucial role in international financial markets. This study investigates whether CRAs sovereign credit news such as rating changes, outlook, and credit watch status affects Brazil’s financial stability as represented by credit risk and solvency risk of Brazilian banks. Using a panel with a sample of 125 banks, the results reveal that the sovereign credit news alters credit risk coverage (credit provisions) and solvency risk (capital buffer) secured by Brazilian banks. The improvement of Brazilian sovereign risk leads banks to reduce their protections against credit risk (credit provisions) and capital level, which can threaten financial stability.

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