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Small firms and domestic bank dependence in Europe's Great Recession


Hoffmann, Mathias; Maslov, Egor; Sørensen, Bent E (2019). Small firms and domestic bank dependence in Europe's Great Recession. CESifo Working Papers 7897, CESifo.

Abstract

Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries where firms borrowed more from domestic banks (“domestic bank dependence”) than in countries where firms borrowed more from international banks. Eurozone banking integration in the years 2000–2008 mainly involved cross-border lending between banks while foreign banks’ lending to the real sector stayed flat. Hence, SMEs remained dependent on domestic banks and were vulnerable to global banking shocks. We confirm, using a calibrated quantitative model, that domestic bank dependence makes sectors and countries with many SMEs vulnerable to global banking shocks.

Abstract

Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries where firms borrowed more from domestic banks (“domestic bank dependence”) than in countries where firms borrowed more from international banks. Eurozone banking integration in the years 2000–2008 mainly involved cross-border lending between banks while foreign banks’ lending to the real sector stayed flat. Hence, SMEs remained dependent on domestic banks and were vulnerable to global banking shocks. We confirm, using a calibrated quantitative model, that domestic bank dependence makes sectors and countries with many SMEs vulnerable to global banking shocks.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:F30, F36, F40, F45
Uncontrolled Keywords:Banking integration, domestic bank dependence, international transmission, small and medium enterprises, sme access to finance
Language:English
Date:October 2019
Deposited On:22 Aug 2019 11:27
Last Modified:11 Feb 2020 08:21
Series Name:CESifo Working Papers
Number of Pages:52
ISSN:2364‐1428
Additional Information:Also appeared as CAMA WP 76/2019 and as CESifo-WP 7897, earlier versions as CEPR-DP 13691 and as European Economy Discussion Paper 12 (see related URLs).
OA Status:Green
Official URL:https://www.cesifo.org/en/publikationen/2019/working-paper/small-firms-and-domestic-bank-dependence-europes-great-recession
Related URLs:https://cama.crawford.anu.edu.au/publication/cama-working-paper-series/15322/small-firms-and-domestic-bank-dependence-europes-great
https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13691
https://ec.europa.eu/info/publications/economy-finance/small-firms-and-domestic-bank-dependence-europes-great-recession_en

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