Journal of Financial Stability Vol. 87 2026
Words that move markets: ECB presidential tone and euro area bank CDS spreads
Abstract
We examine whether the European Central Bank (ECB) President’s communication tone is systematically related to market-based measures of euro area bank risk. Using Loughran–McDonald dictionaries, we construct quarterly indicators of textual tone and readability from ECB presidential statements over 2008Q1–2024Q4. We link these indicators to country-level bank credit default swap (CDS) indices for euro area member states. Our analysis focuses on uncertainty-related and constraining language as communication dimensions especially relevant to financial stability. We estimate panel regressions with macro-financial controls, horse-race specifications, and deploy principal component analysis to distinguish overlapping sentiment dimensions, with additional robustness checks in first differences. A more uncertainty-laden and constraining ECB presidential tone is associated with higher bank CDS spreads, even after controlling for macro-financial fundamentals. Lower readability of ECB statements is likewise linked to greater bank stress, indicating that both the tone and the clarity of central bank communication matter for bank-risk pricing. The association between bank CDS spreads and ECB communication tone is more pronounced during turbulent than tranquil periods. Our findings are consistent with a sentiment-guidance channel through which central bank communication is reflected in perceptions of bank fragility beyond traditional policy and macro-financial factors. They indicate that the tone, complexity, and crisis-contingent framing of ECB communication are economically relevant for financial-stability pricing and the sovereign-bank nexus in the euro area.
- DOI
- 10.1016/j.jfs.2026.101600
- Volume
- 87
- Pages
- 101600
- Language
- en
- Sources
- crossref openalex