Determinants of European banks’ default risk

Using bank CDS spreads, we examine three types of determinants Euro Area default risk in the period 2008–2019: characteristics related to new regulation, bank-sovereign nexus and monetary policy stance. We find that Basel 3 regulation improves banks’ profile since higher capital ratios more stable deposit funding contribute significantly lower spreads. confirm persistence interconnectedness sovereign is transmitted with an amplification factor. The ECB stance neutral respect risk, hence no evidence perceived excessive risk-taking behavior.