CNB Research Seminar "The Evolving Nexus: Sovereigns, Banks and NBFIs"

Prague, 3 June 2026

Bryan Hardy (Bank for International Settlements)

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Bryan Hardy works as a Senior Economist at the Bank for International Settlements in the Monetary and Economic Department’s International Finance unit. His research focuses on international finance, banking, corporate finance, and financial stability, including topics such as capital flows, emerging markets, foreign currency debt, sovereign debt, and international banking.

The Evolving Nexus: Sovereigns, Banks and NBFIs (abstract)

The traditional sovereign-bank nexus has been a major financial stability concern, particularly following the eurozone crisis and the post-Covid rise in sovereign debt. However, non-bank financial institutions (NBFIs) have grown significantly to take center stage in international financial markets, particularly as key intermediaries in sovereign bond markets. This paper examines the transmission of risks among banks, sovereigns and NBFIs using bank-level data for European banks and aggregate data worldwide. We find that banks’ exposure to the sovereign (domestic or cross-border) has recently become less important in explaining the risk co-movement between banks and sovereigns. Instead, banks’ exposure to NBFIs in the country of the sovereign has gained importance as an explanatory factor for the same co-movement. This is driven primarily by exposures to riskier sovereigns (and associated NBFIs). We also find evidence that the importance of NBFI holdings of sovereign debt as drivers of the correlation between NBFI risk with sovereign risk has risen. Together, our results indicate that the traditional sovereign-bank nexus has morphed into a broader sovereign-bank-NBFI nexus.