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Interbank market integration, loan rates, and firm leverage

  • Popov, Alexander
  • Ongena, Steven

This paper investigates the effect of interbank market integration on small firm finance in the build-up to the 2007-2008 financial crisis. We use a comprehensive data set that contains contract terms on individual loans to 6047 firms across 14 European countries between 1998:01 and 2005:12. We account for the selection that arises in the loan request and approval process. Our findings imply that integration of interbank markets resulted in less stringent borrowing constraints and in substantially lower loan rates. The decrease was strongest in markets with competitive banking sectors. We also find that in the most rapidly integrating markets, firms became substantially overleveraged during the build-up to the crisis.

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File URL: http://www.sciencedirect.com/science/article/B6VCY-50T9WWV-1/2/1816ff837e4177747b4846ab4cf86b88
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 3 (March)
Pages: 544-559

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:3:p:544-559
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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  1. Imbs, Jean, 2006. "The real effects of financial integration," Journal of International Economics, Elsevier, vol. 68(2), pages 296-324, March.
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  11. Hartmann, Philipp & Grüner, Hans Peter & Fecht, Falko, 2007. "Welfare effects of financial integration," Discussion Paper Series 2: Banking and Financial Studies 2007,11, Deutsche Bundesbank, Research Centre.
  12. Martin Brown & Tullio Jappelli & Marco Pagano, 2007. "Information Sharing and Credit: Firm-Level Evidence from Transition Countries," Working Papers 2007-15, Swiss National Bank.
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  14. Allen N. Berger & Leora F. Klapper & Gregory F. Udell, 2001. "The ability of banks to lend to informationally opaque small businesses," Finance and Economics Discussion Series 2001-34, Board of Governors of the Federal Reserve System (U.S.).
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