Download or read book Intertwined Sovereign and Bank Solvencies in a Model of Self-Fulfilling Crisis written by Gustavo Adler and published by International Monetary Fund. This book was released on 2012-07-01 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Large fiscal financing needs, both in advanced and emerging market economies, have often been met by borrowing heavily from domestic banks. As public debt approached sustainability limits in a number of countries, however, high bank exposure to sovereign risk created a fragile inter-dependence between fiscal and bank solvency. This paper presents a simple model of twin (sovereign and banking) crisis that stresses how this interdependence creates conditions conducive to a self-fulfilling crisis.