ECB paper: ban on trading naked sovereign CDS in 2012 had greatest impact on systemic risk reduction for sovereigns

Effectiveness of policy and regulation in European sovereign credit risk markets: a network analysis
Rebekka Buse Melanie Schienle Jörg Urban
European Systemic Risk Board
Working Paper Series No 90
March 2019

We study the impact of changes in regulations and policy interventions on systemic risk among European sovereigns measured as volatility spillovers in respective credit risk markets. Our unique intraday CDS dataset allows for precise measurement of the effectiveness of these events in a network setting. In particular, it allows discerning interventions which entail significant changes in network cross-effects with appropriate bootstrap confidence intervals. We show that it was mainly regulatory changes with the ban of trading naked sovereign CDS in 2012 as well as the new ISDA regulations in 2014 which were most effective in reducing systemic risk. In comparison, we find that the effect of policy interventions was minor and generally not sustainable. In particular, they only had a significant impact when implemented for the first time and when targeting more than one country. For the volatility spillover channels, we generally find balanced networks with no fragmentation over time.

The full paper is available at

Related Posts

Previous Post
Finadium: Scenarios for a Cyber Collateral Attack
Next Post
Fed research: Financial Stability Committees are more concerned with politics than taking action

Fill out this field
Fill out this field
Please enter a valid email address.


Reset password

Create an account