Research On The Effect Of Its Banking Sector In Europe’s Sovereign Debt Crisis

From its inception，Eurozone has been has played a huge role in promoting theeconomies of its members, even the whole world. But both the different levels ofeconomy and unsustainable social welfare system are important fuses for the crisistoday. Meanwhile, the2007financial crisis was still there, the global economy was indepression and member countries were unable to pay its foreign debt, so the world’smajor rating agencies had to lower the euro zone’s sovereign debt ratings. As a result,European sovereign debt crisis broke out. It led to panic in investors, soaring liabilitycosts and dramatically shrinking asset prices, and increased the debt ratio and leveragein countries in crisis.Sovereign debt is issued by national credit, often held by banks as an importantinvestment vehicle. However, in the sovereign debt crisis, these debts faced great riskof default and devaluation, which made the crisis spread to the banking sector with alot of problems, such as dropping capital adequacy ratio, rising non-performing assetratio and lack of liquidity.This paper focuses on the European sovereign debt crisis’s impacts on its bankingsector and the transmission mechanism. First of all, it’s an overview of the Europeansovereign debt crisis, which is a preliminary understanding of its performance, causesand relief measures taken, as a basis for the subsequent analysis; second, from thedirect and indirect perspectives to analyze the transmission channels of the crisis on thebanking sector, and build the correlation model between the European bond market andthe European banking sector efficiency to analyze the impacts on the banking sector;finally, it evaluates the effectiveness of measures already taken by the Europeanbanking sector, such as reduction in assets, building the Banking Union.The European sovereign debt crisis has many inspirations on China, such as thecontrol of the public debt, the establishment of a deposit insurance system etc. Chinashould learn from it to strengthen the risk management of Chinese banking sector andmaintain stability and security of banking system.