Banks, Government Bonds and Default: What do the Data Say? Nicola - - PowerPoint PPT Presentation

Banks, Government Bonds and Default: What do the Data Say?

Nicola Gennaioli, Alberto Martin and Stefano Rossi

Bocconi, CREI, and Purdue

December 13, 2016

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 1 / 32

Introduction

What are the costs of sovereign risk/defaults?

Recent emphasis on importance of banking channel

Center stage during recent European crisis

Europe’s troubled banks and broke governments are in a dangerous embrace

(The Economist, 2011)

Different potential channels:

Balance sheet channel: banks hold substantial amounts of government bonds Safety net channel: banks backed by government guarantees Macroeconomic channel: austerity policies might hurt economic activity and

thus banks

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 2 / 32

This paper

Focus on balance sheet channel

Banks hold substantial amounts of domestic government bonds Liquidity (Bolton and Jeanne 2011, Gennaioli et al. 2014) Risk-taking (Farhi and Tirole 2015) Default hurts balance sheets of banks → ⇓ in lending → ⇓ in output

Believed to have played major role in recent European crisis Yet scant systematic evidence: existing facts

Aggregate (Gennaioli et al. 2014) European: based on stress tests 2010-12 and syndicated lending (Popov and

Van Horen (2014), De Marco (2016))

Limited time period, small lending market GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 3 / 32

What we do

Analyze sovereign default-bank nexus using bank-level data

Across many countries, periods and default episodes

Stylized facts (no causality) Two key questions:

Which banks, in which countries, hold government bonds? Do they hold bonds all of the time or mostly during sovereign defaults? Do banks that hold more government bonds reduce their lending the most

during defaults?

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 4 / 32

The Data

Bankscope database Advantage: wide coverage

Characteristics of over 20.000 banks in 191 countries between 1998-2012 Bondholdings at the bank level 20 default episodes: mostly in developing countries

Disadvantage:

Does not report nationality of bonds Domestic or foreign government bonds? GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 5 / 32

Main results

Negative, significant correlation between bank’s bondholdings during sovereign default and subsequent lending

$1 increase in bondholdings ⇔ $0.50 decrease in lending Result robust to controlling for country shocks and bank characteristics

Banks hold large amount of government bonds (around 9% of assets) in normal times

In particular, banks that make fewer loans and are located in financially

underdeveloped countries

Bondholdings increase slightly during default episodes Especially in larger (and more profitable) banks

Findings consistent with “supply” channel

Banks hold substantial bonds in normal times (liquidity services) Government defaults hurt banks and reduce lending Conceptually: result consistent with imperfect discrimination (Broner et al.

2010)

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 6 / 32

Related literature

Costs of sovereign defaults

Recent theories based on non-discrimination: collateral damage of defaults Basu (2010), Broner and Ventura (2011), Brutti (2011), Gennaioli et al.

(2014), Mengus (2015), Farhi and Tirole (2015)

Relationship between sovereign risk and private credit Arteta and Hale (2008), Borensztein and Panizza (2008), Baskaya and

Kalemli-Ozcan (2016)

Relationship between bank lending and sovereign risk

Acharya and Steffen (2013), Brutti and Saure (2013), Popov and Van Horen

(2014), De Marco (2016)

Demand for government bonds

Krishnamurthy and Vissing-Jorgensen (2012), Greenwood and Vayanos (2014) GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 7 / 32

Data sources: bank-level variables

Bank-level data from Bankscope dataset (Bureau van Dijk)

Information on broad range of bank characteristics Suitable for international comparisons because data is harmonized

Crucial: Bankscope reports banks’ holdings of government bonds

However, no information on nationality of bonds Use IMF/EU/Argentine data to validate information

Main sample: 7,391 banks in 160 countries, 36,449 bank-year observations

Commercial banks (33.2%), cooperatives (38.2%), savings banks (20.6%),

investment banks (1.6%)

Sample construction: filter out duplicate records banks with total assets <$100K years < 1997 banks without two consecutive years of data GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 8 / 32

Data sources: aggregate variables

Macroeconomic conditions:

IMF’s International Financial Statistics (IFS) and WB’s World Development

Indicators (WDI)

Proxy financial development with private credit to GDP

Sovereign default:

Dummy variable based on Standard and Poor’s Default is failure to meet principal or interest payment in original terms Greek bond swap of 2012: default 19 sovereign defaults in 16 countries complement analysis with alternative measure of default “haircuts” (Cruces and Trebesch 2013) S&P measure “augmented” with spreads GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 9 / 32

Data sources: aggregate variables

Supplement Bankscope data with realized and expected bond returns Realized returns:

JP Morgan’s Emerging Market Bond Index (EMBIG+) for emerging countries,

and on JP Morgan’s Global Bond Index (GBI) for developed countries

Kim (2010) and Levy-Yeyati, Martinez-Peria, and Schmukler (2010)

Expected returns: problematic, because not observed

construct it through two-step process first stage: regress returns on country-specific economic, financial and political

risk factors Rc,t = γt + β0 + β1Zc,t−1 + uc,t where

Rc,t is realized returns of public bonds in country c at time t γt are time-dummies, which capture variations in global risk-free rate Zc,t−1 are risk ratings compiled by ICRG, shown to negatively predict returns

(e.g. Comelli 2012)

second stage: define expected returns as fitted values of this first-stage

regression

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 10 / 32

Sample of sovereign defaults

Country Default S&P Haircut No Bank-Years No Banks Argentina 2001-2004 76.8% 231 87 Ecuador 1998-2000 38.3% 32 30 Ecuador 2009 67.7% 8 8 Ethiopia 1998-1999 92.0% 2 1 Greece 2011-2012 64.8% 12 6 Guyana 1998-2004 91.0% 20 3 Honduras 1998-2004 82.0% 79 21 Ireland 7 7 Indonesia 1998-2000; 2002 17 13 Jamaica 2010 5 5 Kenya 1998-2004 45.7% 160 33 Nigeria 2002 41 41 Portugal 12 12 Russia 1998-2000 51.1% 40 31 Serbia 1998-2004 70.9% 2 2 Seychelles 2000-2002; 2010 56.2% 1 1 Sudan 1998-2004 2 1 Ukraine 1998-2000 14.8% 14 7 Venezuela 34 26 Zimbabwe 2000-2004 6 3 No Banks 725 338 No Countries 16 11 No Episodes 19 12 GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 11 / 32

Data on bondholdings: is it reliable?

Compare with IMF aggregate data

Financial Institutions’ Net Claims to the Government(IFS)

Average measures look quite similar

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 12 / 32

Data on bondholdings: is it reliable?

Compare with bank-level data

European stress tests (2010, 2011, 2012) Data on domestic bondholdings from Argentine Central Bank (2002-2004)

Table I – Bank’s Holdings of Government Bonds from BANKSCOPE and Other Sources

The table reports summary statistics of bank bondholdings as a percentage of total assets for selected samples.

Sample EU Banks GIIPS Banks Argentine Banks Source BANKSCOPE Stress Test BANKSCOPE Stress Test BANKSCOPE Central Bank Mean 8.16 5.12 9.43 6.22 14.23 11.34 Median 7.68 4.44 8.22 5.64 10.73 8.09 Correlation 0.69 0.76 0.77 Sample Period 2010-2012 2010-2012 1997-2004 No Obs. 126 65 589 No Banks 66 33 142

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 13 / 32

Descriptive statistics: bondholdings

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 14 / 32

Descriptive statistics: bank characteristics

Panel A – Bankscope, Constant-continuing sample Mean Median Std Deviation No Countries No Observations Assets ($/M) 9,922.0 725.6 81,400.0 160 36,449 Non-cash assets 95.8 97.6 5.6 160 36,449 Leverage 91.0 93.3 8.4 160 36,449 Loans 57.1 60.0 17.0 160 36,449 Profitability 0.9 0.7 2.1 160 36,449 Exposure to Central Bank 3.3 1.5 4.9 160 36,449 Interbank Balances 12.2 9.2 12.5 160 36,449 Government Owned 2.5 0.0 15.7 160 36,449 GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 15 / 32

Descriptive statistics: sovereign bond returns

Figure 2. Sovereign Bond Prices in Defaulting Countries. The figure plots the average bond prices over 7 default episodes in 6 countries (Argentina 2001-2004, Russia 1998-2000, Cote d’Ivoire 2000-2004, Ecuador 1998-2000, Ecuador 2009, Nigeria 2002, Greece 2012), from day -1,000 to +1,000, whereby day 0 is the day in which default is announced.

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 16 / 32

Government bonds and lending

Do bondholdings matter for lending? Letting Λi,c,t denote change in loans/assets for bank i, in country c, between time t − 1 and t, we run the following regression: Λi,c,t = γ0 + γ1 · Bi,c,t−1 + γ2 · Defc,t−1 + +γ3 · Defc,t−1 · Bi,c,t−1 + γ4 · Xi,c,t−1 + +γ5 · Defc,t−1 · Xc,t−1 + γ6 · Xc,t−1 + γ7 · Defc,t−1 · Xc,t−1 +µi,c,t where:

Bi,c,t−1 is the bond/asset ratio for bank i, c and Defc,t−1 is a default dummy Xi,c,t−1 and Xc,t−1 are vectors of bank and country level characteristics Bank variables: loans outstanding, non-cash assets, exposure to central bank,

interbank balances, government ownership

Country variables: financial development (private credit/GDP and banking

crises), growth, inflation, expected bond returns

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 17 / 32

Government bonds and lending

Letting Λi,c,t denote change in loans/assets for bank i, in country c, between time t − 1 and t, we run the following regression: Λi,c,t = γ0 + γ1 · Bi,c,t−1 + γ2 · Defc,t−1 + +γ3 · Defc,t−1 · Bi,c,t−1 + γ4 · Xi,c,t−1 + +γ5 · Defc,t−1 · Xc,t−1 + γ6 · Xc,t−1 + γ7 · Defc,t−1 · Xc,t−1 +µi,c,t Main focus: γ3

γ1 captures average effect of bondholdings on bank loans γ3 captures differential effect of bondholdings on loans during default

γ3 < 0: consistent with hypothesis that, during defaults, bank lending is affected through bondholdings

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 18 / 32

Table IV – Bondholdings, Sovereign Default, and Changes in Loans

The table presents coefficient estimates from pooled OLS regressions. Standard errors (in parentheses below the coefficient estimates) are adjusted for heteroskedasticity using the Huber (1967) and White (1980) correction, as well as for clustering at the bank level using the Huber (1967)

• correction. *** indicates significance at the 1% level; ** indicates significance at the 5% level; * indicates significance at the 10% level.

(1) (2) (3) (4) (5) Bank Bondholdingsi,c,t–1 *

• 0.126**
• 0.129**
• 0.096*
• 0.148**
• 0.133***

Sovereign Defaultc,t–1 (0.057) (0.057) (0.058) (0.060) (0.045) Sovereign Bond Returnc,t–1 * 0.072*** 0.068*** 0.071*** Sovereign Defaultc,t–1 (0.014) (0.015) (0.015) Bank Bondholdingsi,c,t–1 0.032*** 0.034*** 0.009 0.009 0.018** (0.009) (0.009) (0.011) (0.011) (0.008) Sovereign Defaultc,t–1

• 0.038
• 0.035
• 0.019

(0.026) (0.025) (0.024) Sovereign Bond Returnc,t–1 0.005 0.011* 0.004 (0.005) (0.006) (0.007) Leveragei,c,t–1 * 0.115** 0.107** 0.084 0.035 0.028 Sovereign Defaultc,t–1 (0.054) (0.054) (0.053) (0.057) (0.048) Loansi,c,t–1 *

• 0.180***
• 0.189***
• 0.169***
• 0.202***
• 0.189***

Sovereign Defaultc,t–1 (0.050) (0.050) (0.049) (0.054) (0.041) Bank Sizei,c,t–1 0.001*** 0.001*** 0.001*** 0.001*** 0.001*** (0.000) (0.000) (0.000) (0.000) (0.000) Non-cash assetsi,c,t–1

• 0.029*
• 0.032*

0.025 0.011

• 0.021

(0.017) (0.017) (0.020) (0.020) (0.016) Loansi,c,t–1

• 0.043***
• 0.041***
• 0.061***
• 0.054***
• 0.049***

(0.005) (0.005) (0.005) (0.005) (0.004) Profitabilityi,c,t–1

• 0.083
• 0.089
• 0.078
• 0.094*
• 0.087**

(0.060) (0.060) (0.056) (0.053) (0.042) Exposure to Central Banki,c,t–1

• 0.006
• 0.005

0.072*** 0.048** 0.047*** (0.019) (0.019) (0.024) (0.023) (0.016) Interbank Balancesi,c,t–1 0.016** 0.019*** 0.004 0.010 0.004 (0.007) (0.007) (0.007) (0.007) (0.005) (0.004) (0.004) (0.004) (0.004) (0.003) Year Dummies? Yes Yes Yes Yes Country Dummies? Yes Yes Yes Country x Year Dummies? Yes Yes Constant 0.041** 0.033*

• 0.026

0.184

• 0.078

(0.018) (0.018) (0.021) (102.387) (177.873) No Observations 14,074 14,074 14,074 14,074 27,408 No Banks 3,722 3,722 3,722 3,722 5,218 No Countries 60 60 60 60 158 R-squared 0.061 0.072 0.106 0.204 0.224 GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 19 / 32

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 20 / 32

Main result and robustness

Effect of bondholdings on lending quantitatively large

$1 increase in bonds held by average bank → $0.50 decline in lending

Result is robust to:

Alternative definitions of lending

Li,c,t − Li,c,t−1 Ai,c,t and ∆ log(Li,c,t)

Exclusion of government-owned banks Exclusion of small countries (GDP per capita and size of default) Exclusion of countries with few banks Alternative definitions of default Haircut measure of Cruces and Trebesch (2013) S&P dummy “augmented” with high spreads GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 21 / 32

Government bonds and lending

Previous results come from all observations

Bonds held at the time of default Bonds accumulated during default What drives the results?

Focus on bonds at time of default Analyze change in lending in two years post-default and:

Bonds held in pre-default year Average bonds held in three years prior to default GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 22 / 32

Government bonds and lending

Table VII – Bondholdings and Changes in Loans: Normal Times v Default Years Bonds

The table presents coefficient estimates from pooled OLS regressions. The dependent variable changes in loans is computed as loans outstanding in year t minus loans outstanding in year t-1, divided by total assets. The main independent variables are pre-default bank bondholdings, coimputed as bondholdings in the year prior to the first year of a sovereign default, divided by total assets; average pre-default bank bondholdings, computed as the average of bondholdings divided by total assets in the last three years prior to the first year of a sovereign default; bank average non-default years bondholdings, computed as the average of bank bondholdings in all the non-default years prior to and including year t–1 , bank time-varying bondholdings, computed as bank bondholdings minus bank average non-default years bondholdings. Standard errors (in parentheses below the coefficient estimates) are adjusted for heteroskedasticity using the Huber (1967) and White (1980) correction, as well as for clustering at the bank level using the Huber (1967) correction. *** indicates significance at the 1% level; ** indicates significance at the 5% level; * indicates significance at the 10% level.

(1) (2) Pre-Default Bank Bondholdings

• 0.281***

(0.080) Avg Pre-Default Bank Bondholdings

• 0.361***

(0.028) Sovereign Bond Returnt–1 * Bank-Level Controls and Interactions? Yes Yes Year Dummies? Yes Yes Country Dummies? Yes Yes Country x Year Dummies? Constant 0.780** 0.874** (0.275) (0.272) No Observations 105 105 No Banks 105 105 No Countries 5 5 R-squared 0.439 0.442

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 23 / 32

Government bonds and lending

What can we conclude?

In default, significant relationship between bondholdings and lending

Consistent with recent findings for the European crisis:

Banks’ costs of funds correlated with their bondholdings during crisis Significant, negative correlation between bank stock price/CDS and country

CDS

Correlation stronger for banks with higher bondholdings Bank (syndicated) lending correlated with bondholdings during crisis Banks in core countries with differential exposure to periphery debt (Popov and

van Horen, forthcoming)

De Marco (2016) finds similar evidence GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 24 / 32

Determinants of bondholdings

We know:

Banks hold substantial amount of bonds in non-default years Banks hold slightly more bonds in default years

Delving deeper: letting Bi,c,t denote bonds/assets held by bank i, in country c, at time t, we run Bi,c,t = α0 + α1 · Xi,c,t−1 + α2 · Xc,t−1 + α3 · Defc,t−1 + α4 · Defc,t−1 · Xi,c,t−1 + α5 · Defc,t−1 · Xc,t−1 + ǫi,c,t where:

Defc,t−1 is a default dummy Xi,c,t−1 and Xc,t−1 are vectors of bank and country level characteristics Bank variables: loans outstanding, non-cash assets, exposure to central bank,

interbank balances, government ownership

Country variables: financial development (private credit/GDP and banking

crises), growth, inflation, expected bond returns

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 26 / 32

(1) (2) (3) Sovereign Defaultt–1* 0.009*** 0.011*** 0.007*** Sizet–1 (0.003) (0.003) (0.003) Sovereign Defaultt–1*

• 0.013
• 0.042
• 0.041

Loanst–1 (0.032) (0.037) (0.029) Sovereign Defaultt–1 * 0.107*** Expected Sovereign Bond Returnt–1 (0.029) Sovereign Defaultt–1 * 0.027 1.758*** GDP Growtht–1 (0.170) (0.432) Sovereign Defaultt–1 * 0.035* 0.172*** Banking Crisist–1 (0.021) (0.045) Sovereign Defaultt–1 * 0.448* 2.048*** Private Creditt–1 (0.230) (0.438) Sovereign Defaultt–1

• 0.123
• 1.501***
• 0.091*

(0.158) (0.344) (0.055) Sizet–1 0.001*** 0.001 0.000 (0.000) (0.000) (0.000) Loanst–1

• 0.027***
• 0.047***
• 0.041***

(0.004) (0.007) (0.004) Expected Sovereign Bond Returnt–1

• 0.027***

(0.008) GDP Growtht–1

• 0.164**
• 0.134

(0.066) (0.096) Banking Crisist–1 0.030*** 0.022 (0.005) (0.019) Private Creditt–1

• 0.021***

0.038** (0.004) (0.018) Other controls? Yes Yes Yes Year Dummies? Yes Yes Yes Country Dummies? Yes Yes Country x Year Dummies? Yes No Observations 13,082 5,341 26,549 No Banks 2,896 2,103 5,124 No Countries 38 29 157 R-squared 0.801 0.739 0.814

GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 27 / 32

Bondholdings: main results

In non-default years: bondholdings

Negatively correlated with lending Negatively correlated with financial development

In default years: bondholdings, increase

Especially in large (and profitable) banks Especially in countries with higher financial development

Consistent with following narrative:

In non-default years, bonds held for liquidity provision Banks without good investment opportunities or alternative assets In default years, subset of banks increases bondholdings Average increase slight No indication that it is concentrated in “bad” banks GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 28 / 32

Conclusion

Evidence from 19 default episodes in 16 countries between 1998 and 2012 Main findings:

Strong negative correlation between bondholdings and subsequent lending $1 increase in bondholdings → $.50 fall in loans Banks hold large amount of bonds in non-default years Especially banks with fewer loans, in less financially developed countries During default, bondholdings increase slightly: particularly in large banks

What do we learn?

Link between sovereign default and bank lending seems to be prevalent Consistent non-discrimination view (Broner et al. 2010, etc..) Differences between emerging and advanced economies Bonholdings in emerging markets higher than in OECD (12.7% vs. 5%) Implications for regulation (e.g. risk weights) GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 29 / 32

Panel A – Bankscope, Constant-continuing sample Mean Median Std Deviation No Countries No Observations Assets ($/M) 9,922.0 725.6 81,400.0 160 36,449 Non-cash assets 95.8 97.6 5.6 160 36,449 Leverage 91.0 93.3 8.4 160 36,449 Loans 57.1 60.0 17.0 160 36,449 Profitability 0.9 0.7 2.1 160 36,449 Exposure to Central Bank 3.3 1.5 4.9 160 36,449 Interbank Balances 12.2 9.2 12.5 160 36,449 Government Owned 2.5 0.0 15.7 160 36,449 GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 30 / 32

Bonds Bank Size Non- cashAssets Leverage Loans Profitability Exposure Balances Banks size

• 0.063***

Non-cash assets

• 0.835***

0.202*** Leverage

• 0.141***

0.335*** 0.207*** Loans

• 0.376***

0.016*** 0.202*** 0.238*** Profitability 0.102*** 0.059***

• 0.071***
• 0.286***
• 0.100***

Exposure to Central Bank 0.096*** 0.209***

• 0.374***
• 0.218***
• 0.231***

0.140*** Interbank Balances

• 0.136***
• 0.087***

0.117***

• 0.173***
• 0.553***

0.061*** 0.367*** Government Owned 0.082*** 0.141***

• 0.026***
• 0.031***
• 0.073***

0.009*** 0.027*** 0.022 GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 31 / 32

Table V – Bondholdings, Country Shocks, and Changes in Loans

(1) (2) (3) (4) Bank Bondholdingst–1 *

• 0.144**
• 0.117**
• 0.131*
• 0.107*

Sovereign Defaultt–1 (0.062) (0.047) (0.068) (0.064) Bank Bondholdingst–1 * 0.156 0.285** GDP Growtht–1 (0.140) (0.137) Bank Bondholdingst–1 *

• 0.027
• 0.025

Exchange Rate Devaluationt–1 (0.040) (0.039) Sovereign Bond Return * 0.091

• 0.010

Sovereign Defaultt–1 (0.077) (0.059) Bank Bondholdingst–1 0.001 0.003 0.008 0.013 (0.012) (0.009) (0.011) (0.008) Bank-Level Controls and Interactions Yes Yes Yes Yes with Sovereign Default? Bank-Level Controls and Interactions Yes Yes with GDP Growth? Bank-Level Controls and Interactions Yes Yes with Exchange Rate Devaluation? Year Dummies? Yes Yes Yes Yes Country Dummies? Yes Yes Yes Yes Country * Year Dummies? Yes Yes Yes Yes Constant 0.229

• 0.040
• 0.118

0.141 (0.147) (3.715) (0.087) (130.540) No Observations 13,873 26,467 13,908 24,982 No Banks 3,649 4,967 3,646 4,645 No Countries 56 129 54 97 R-squared 0.205 0.214 0.205 0.204 GMR (Bocconi, CREI, and Purdue) Sovereign Debt and Risks December 13, 2016 32 / 32