Using a comprehensive dataset from German banks, we document the usage of sovereign credit default swaps (CDS) during … the European sovereign debt crisis of 2008-2013. Banks used the sovereign CDS market to extend, rather than hedge, their … associated with protection selling. The findings are driven by the actions of a few non-dealer banks which sold CDS protection …

European banks are exposed to a substantial amount of risky sovereign debt. The "missing bank capital" resulting from … the zero-risk weight exemption for European banks for European sovereign debt amplifies the co-movement between sovereign … consider the trade-off of benefits of sovereign debt (for banks and sovereigns) and spillover risk when applying risk …

We study optimal bailout policies in the presence of banking and sovereign crises. First, we use European data to … model of sovereign borrowing with limited commitment, where domestic banks hold government debt and also provide credit to …