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SME lending and banking system stability: Some mechanisms at work

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  • Brei, Michael
  • Gadanecz, Blaise
  • Mehrotra, Aaron

Abstract

This paper sheds light on the effects of SME lending on banking system stability. Using a dataset of 32 economies during 2007–15, we find that higher growth in SME lending is associated with greater banking system stability, as measured by greater distance to default, but only in emerging market economies (EMEs). In EMEs, financial development tends to be lower and information asymmetries higher so that profitable projects may remain unfinanced.

Suggested Citation

  • Brei, Michael & Gadanecz, Blaise & Mehrotra, Aaron, 2020. "SME lending and banking system stability: Some mechanisms at work," Emerging Markets Review, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:ememar:v:43:y:2020:i:c:s1566014118303789
    DOI: 10.1016/j.ememar.2020.100676
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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