Credit risk transmission in the European banking sector: the case of the subprime and Eurozone debt crises

El objetivo del presente trabajo es analizar en profundidad la transmision del riesgo de credito, aproximado por los CDS spreads, en el sector bancario europeo durante el periodo 2006-2012, intentando dar respuesta a diversas cuestiones: (i) existe evidencia de transmision del riesgo de credito entre las entidades financieras europeas de la Eurozona y las que no pertenecen a dicha zona?, (ii) es esta transmision bidireccional o unidireccional?, (iii) concretamente, que paises han liderado dicha transmision?, y (iv) como se ha visto afectada dicha transmision con las recientes crisis financieras? Los resultados indican un cambio significativo en la transmision del riesgo de credito con el estallido de la crisis subprime, con un efecto notable proveniente de los bancos de la Eurozona hacia los que no pertenecen a dicha zona. The aim of this paper is to analyse in depth the transmission of credit risk, approximated by the CDS spreads, in the European banking sector during the period 2006-2012, attempting to respond to several questions: (i) is there any evidence of credit risk transmission between the European financial institutions in the Eurozone and those not belonging to this zone?, (ii) is this transmission bidirectional or unidirectional?, (iii) specifically, what countries have led such transmission? and (iv) how this transmission has been affected by the recent financial crisis? The results indicate a significant change in credit risk transmission with the outbreak of the subprime crisis, with a remarkable effect from the Eurozone banks to those not belonging to this zone.