Credit rating downgrades and systemic risk

George Kladakis*, Alexandros Skouralis

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We examine whether changes in issuer credit ratings by the three main providers are associated with changes in systemic risk. First, we find that rating downgrades result in an increase in bank systemic risk, whereas upgrades do not proportionally reduce systemic risk. Second, we document that the positive relationship between rating downgrades and systemic risk can be mitigated by accounting-based stability factors, such as profitability and capital, but also enhanced by sovereign rating downgrades. Finally, we show that sovereign rating downgrades have a greater effect on bound banks’ systemic risk compared to non-bound banks.
Original languageEnglish
Article number101902
Number of pages16
JournalJournal of International Financial Markets, Institutions and Money
Volume90
Early online date11 Dec 2023
DOIs
Publication statusPublished - 1 Jan 2024

Keywords

  • Credit rating agencies
  • Rating downgrades
  • Systemic risk
  • Banks

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