Sovereign Guarantees, Bank Failures and Receivership: Solution or increasing risk?

The history of sovereign debt crises is limited when compared to banking crises. Nonetheless the impact of sovereign debt crises is immense. Globalization, cross-border banking and international commitment increased the importance of stability, uniform regulation and crises prevention. Both banking crises and sovereign debt crises require urgent solutions. The effectiveness of often applied ad-hoc measures should be considered at forehand. After a theoretical exposition of regulation we analyze the more and less important determinants of banking crises causing sovereign debt crises. Some careful conclusions can be drawn from the nationalization and guarantee variables. The focus is on the solvency of countries rather than the more often applied output gap. The debt to GDP behaved as in earlier research. History showed that banking crises can lead to extreme deviations in debt to GDP. Significant changes in debt to GDP do not always lead to sovereign debt crises. Bank failures in the USA are significantly related to debt to GDP over time. Countries with most significant deviations in debt to GDP need to be analyzed. Current banking and sovereign crises in these countries are exposed in their context