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Exporting Sovereign Stress: Evidence from Syndicated Bank Lending during the Euro Area Sovereign Debt Crisis

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  • Alexander Popov
  • Neeltje Van Horen

Abstract

We show that after the start of the euro area sovereign debt crisis, lending by non-GIIPS European banks with sizeable holdings of GIIPS sovereign bonds declined relative to nonexposed banks. This effect is not driven by changes in borrower demand or by other shocks to banks’ balance sheets. We also find that affected banks withdrew from all foreign markets with the exception of the USA, suggesting an increase in home bias. The slowdown in lending continued after ECB’s LTRO in December 2011, but it was lower for banks that increased their risky exposures in the early stages of the crisis.

Suggested Citation

  • Alexander Popov & Neeltje Van Horen, 2015. "Exporting Sovereign Stress: Evidence from Syndicated Bank Lending during the Euro Area Sovereign Debt Crisis," Review of Finance, European Finance Association, vol. 19(5), pages 1825-1866.
  • Handle: RePEc:oup:revfin:v:19:y:2015:i:5:p:1825-1866.
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    References listed on IDEAS

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    Cited by:

    1. Gropp, Reint & Mosk, Thomas & Ongena, Steven & Wix, Carlo, 2016. "Bank response to higher capital requirements: Evidence from a quasi-natural experiment," SAFE Working Paper Series 156, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    2. Yusuf Soner Baskaya & Sebnem Kalemli-Ozcan, 2016. "Sovereign Risk and Bank Lending: Evidence from 1999 Turkish Earthquake," NBER Working Papers 22335, National Bureau of Economic Research, Inc.
    3. Eichler, Stefan & Rövekamp, Ingmar, 2017. "Eurozone exit risk," CEPIE Working Papers 07/17, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    4. Andrea Zaghini, 2017. "A tale of fragmentation: corporate funding in the euro-area bond market," Temi di discussione (Economic working papers) 1104, Bank of Italy, Economic Research and International Relations Area.
    5. repec:eee:finana:v:53:y:2017:i:c:p:48-65 is not listed on IDEAS
    6. Anil Ari, 2015. "Sovereign Risk and Bank Risk-Taking," Working Papers 202, Oesterreichische Nationalbank (Austrian Central Bank).
    7. repec:eee:finsta:v:31:y:2017:i:c:p:136-153 is not listed on IDEAS
    8. repec:eee:jbfina:v:81:y:2017:i:c:p:65-80 is not listed on IDEAS
    9. Drago, Danilo & Gallo, Raffaele, 2017. "The impact of sovereign rating changes on European syndicated loan spreads: The role of the rating-based regulation," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 213-231.
    10. Philippe BACCHETTA & Ouarda MERROUCHE, 2015. "Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007-2009," Swiss Finance Institute Research Paper Series 15-63, Swiss Finance Institute.
    11. Ohls, Jana, 2017. "Moral suasion in regional government bond markets," Discussion Papers 33/2017, Deutsche Bundesbank.
    12. Thesmar, David & Ors, Evren & Derrien, Francois & Boissel, Charles, 2015. "Systemic Risk in Clearing Houses: Evidence from the European Repo Market," Les Cahiers de Recherche 1112, HEC Paris.
    13. Carlo Altavilla & Marco Pagano & Saverio Simonelli, 2015. "Bank Exposures and Sovereign Stress Transmission," CSEF Working Papers 410, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 13 Jul 2017.
    14. repec:eee:jbfina:v:85:y:2017:i:c:p:99-112 is not listed on IDEAS
    15. Brunella Bruno & Alexandra D’Onofrio & Immacolata Marino, 2017. "Determinants of Bank Lending in Europe and the US. Evidence from Crisis and Post Crisis Years," CSEF Working Papers 462, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    16. Demoussis, Michael & Drakos, Konstantinos & Giannakopoulos, Nicholas, 2016. "The Impact of Sovereign Ratings on Eurozone SMEs Credit Rationing," MPRA Paper 76364, University Library of Munich, Germany.
    17. Zaghini, Andrea, 2017. "A tale of fragmentation: Corporate funding in the euro-area bond market," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 59-68.
    18. Zhang, Lu & Uluc, Arzu & Bezemer, Dirk, 2017. "Did pre-crisis mortgage lending limit post-crisis corporate lending? Evidence from UK bank balance sheets," Bank of England working papers 651, Bank of England.
    19. repec:eee:jfinec:v:125:y:2017:i:3:p:511-536 is not listed on IDEAS
    20. Frey, Rainer, 2016. "Multinational banks’ deleveraging in the Global Financial Crisis," Journal of Multinational Financial Management, Elsevier, pages 90-113.

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