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National politics and bank default risk in the eurozone

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  • Eichler, Stefan
  • Sobański, Karol

Abstract

We study the impact of national politics on default risk of eurozone banks as measured by the stock market-based Distance to Default. We find that national electoral cycles, the power of the government as well as the government’s party ideological alignment significantly affect the stability of banks in the eurozone member countries. Moreover, we show that the impact of national politics on bank default risk is more pronounced for large as well as weakly capitalized banks.

Suggested Citation

  • Eichler, Stefan & Sobański, Karol, 2016. "National politics and bank default risk in the eurozone," Journal of Financial Stability, Elsevier, vol. 26(C), pages 247-256.
    • Handle: RePEc:eee:finsta:v:26:y:2016:i:c:p:247-256
    DOI: 10.1016/j.jfs.2016.07.008
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    More about this item

    Keywords

    Bank default risk; Political factors; Eurozone; Stock market; Distance to default;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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