Sovereign defaults before domestic courts hayk kupelyants oxford private international law series the only book to focus on sovereign debt litigation before english courts with a secondary focus on new york courts. Defaults are costly because they destroy the balance sheets of domestic banks in our model better nancial institutions allow banks to be more leveraged thereby making them more vulnerable to sovereign defaults our predictions government defaults should lead to declines in private credit. Sovereign default domestic banks and financial institutions nicola gennaioli alberto martin and stefano rossi abstract we present a model of sovereign debt in which contrary to conventional wisdom government defaults are costly because they destroy the balance sheets of domestic banks. Domestic debt and sovereign defaults enrico mallucci note international finance discussion papers are preliminary materials circulated to stim ulate discussion and critical comment references to international finance discussion pa pers other than an acknowledgment that the writer has had access to unpublished material. This section provides empirical support for the model predictions it shows that empirically episodes of international sovereign defaults largely coincide with episodes of large domestic private defaults moreover the simultaneity of debt crises is more prevalent in countries with weak bankruptcy institutions