debt costs
In 2010, some economists and policymakers continued to worry about the state of European banks because of the mortgage-backed securities and bonds issued by Greece that they had on their balance sheets. An article in the Economist magazine commented: Some banks have been locked out of international borrowing markets, reflecting worries that they could be brought down by the woes of southern Europe and the suspicion that they are sitting on sour loans from the boom years. The fear of contagion has raised debt costs for other banks.
a. In this context, what does the author mean by “contagion”?
b. What are a bank’s “debt costs”? How might contagion cause bank debt costs to rise?
debt costs