This paper identifies the various channels that give rise to a "sovereign-bank nexus" whereby the financial health of banks and sovereigns is intertwined. We find that banks and sovereigns are linked by three interacting channels: banks hold large amounts of sovereign debt; banks are protected...

We show that public guaranteed loans (PGL) increase credit availability improving real effects, but private banks' incentives imply that weaker banks shift riskier corporate loans to taxpayers. We exploit credit register data during the COVID-19 shock in Spain, and a stylized model guides the...