Darracq Pariès, Matthieu; Faia, Ester; Rodriguez … - 2012 - This draft: December 2012
Euro area data show a positive connection between sovereign and bank risk, which increases with banks' and sovereign … long run fragility. We build a macro model with banks subject to incentive problems and liquidity risk (in the form of … liquidity based banks' runs) which provides a link between endogenous bank capital and macro and policy risk. Our banks also …