The recent financial crisis highlighted how the interconnection between banks and sovereign risk could translate a banking crisis into a sovereign crisis. Theoretical and empirical literature has examined both the transmission mechanisms between banks and sovereigns (and viceversa), looking also...

In December 2013 the European Commissioner Barnier, presenting the Single Resolution Mechanism for the resolution and recovery of banking crises, said it will “break the vicious circle between banks and their sovereigns”. But is there any vicious circle? And if so, will resolution tools be...