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Firm Credit in Europe: A Tale of Three Crises

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  • Holton, Sarah

    (Central Bank of Ireland)

  • Lawless, Martina

    (Central Bank of Ireland)

  • McCann, Fergal

    (Central Bank of Ireland)

Abstract

This paper analyses the effects of the recent euro area economic, financial and debt crisis on SMEs’ access to bank finance. We use a survey on access to finance of SMEs in the euro area carried out by the European Central Bank during 2009 and 2010 to examine the impact of macroeconomic factors on developments in loan applications and approvals as well as changes in credit terms and conditions. At the country level, we identify three distinct aspects of the recent crisis in Europe affecting firm credit through different channels. A weak real economy is found to affect the demand for bank financ- ing. Financial conditions (proxied by the median credit default swap for banks in each country and sovereign yields) predominantly affect the probability of loan rejection and the terms and conditions of credit rather than the demand for credit. We interpret this as evidence of a bank balance sheet channel negatively impacting credit provision. Crucially, the level of debt overhang affects all aspects of SME financing, with suggestive evidence that the effect on credit rejection operates through the bank balance sheet channel, as opposed to being due to the borrower balance sheet.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 04/RT/12.

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Date of creation: Jul 2012
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Handle: RePEc:cbi:wpaper:04/rt/12

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  1. Paolo Del Giovane & Ginette Eramo & Andrea Nobili, 2010. "Disentangling demand and supply in credit developments: a survey-based analysis for Italy," Temi di discussione (Economic working papers) 764, Bank of Italy, Economic Research and International Relations Area.
  2. Ciccarelli, Matteo & Peydró, José-Luis & Maddaloni, Angela, 2010. "Trusting the bankers: a new look at the credit channel of monetary policy," Working Paper Series 1228, European Central Bank.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
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Cited by:
  1. Casey, Eddie & O'Toole, Conor, 2013. "Bank-lending constraints and alternative financing during the financial crisis: Evidence from European SMEs," Papers WP450, Economic and Social Research Institute (ESRI).
  2. Francesca Barbiero & Michael Blanga-Gubbay & Valeria Cipollone & Koen De Backer & Sébastien Miroudot & Alexandros Ragoussis & André Sapir & Reinhilde Veugelers & Erkki Vihriälä & Guntram B, . "Manufacturing Europeâ??s future," Blueprints, Bruegel, number 795, October.
  3. Holton, Sarah & McCann, Fergal, 2012. "Irish SME credit supply and demand: comparisons across surveys and countries," Economic Letters 08/EL/12, Central Bank of Ireland.
  4. Gerlach, Petra & O'Connell, Brian & O'Toole, Conor, 2013. "SME Credit Constraints and Macroeconomic Effects," Papers WP467, Economic and Social Research Institute (ESRI).
  5. O'Toole, Conor & Gerlach, Petra & O'Connell, Brian, 2013. "Measuring Credit Constraints for Irish SMEs," Research Notes RN2013/1/3, Economic and Social Research Institute (ESRI).

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