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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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    1. Rabah Arezki & Bertrand Candelon & Amadou Sy, 2011. "Sovereign Rating News and Financial Markets Spillovers: Evidence from the European Debt Crisis," CESifo Working Paper Series 3411, CESifo.
    2. Harald Uhlig, 2014. "Sovereign Default Risk and Banks in a Monetary Union," German Economic Review, Verein für Socialpolitik, vol. 15(1), pages 23-41, February.
    3. Peek, Joe & Rosengren, Eric S, 1997. "The International Transmission of Financial Shocks: The Case of Japan," American Economic Review, American Economic Association, vol. 87(4), pages 495-505, September.
    4. Russell Cooper & Kalin Nikolov, 2018. "Government Debt And Banking Fragility: The Spreading Of Strategic Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(4), pages 1905-1925, November.
    5. Viral Acharya & Itamar Drechsler & Philipp Schnabl, 2014. "A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk," Journal of Finance, American Finance Association, vol. 69(6), pages 2689-2739, December.
    6. Chiara Angeloni & Guntram B. Wolff, 2012. "Are banks affected by their holdings of government debt?," Working Papers 717, Bruegel.
    7. Ongena, S. & Peydro, J.L. & van Horen, N., 2013. "Shocks Abroad, Pain at Home? Bank-firm Level Evidence on the International Transmission of Financial Shocks," Discussion Paper 2013-040, Tilburg University, Center for Economic Research.
    8. Victoria Ivashina & David Scharfstein & Jeremy C. Stein, 2012. "Dollar funding and the lending behavior of global banks," Finance and Economics Discussion Series 2012-74, Board of Governors of the Federal Reserve System (U.S.).
    9. repec:dgr:kubcen:2013040 is not listed on IDEAS
    10. Harald Uhlig, 2013. "Sovereign Default Risk and Banks in a Monetary Union," CESifo Working Paper Series 4368, CESifo.
    11. Bertrand Candelon & Amadou N Sy & Rabah Arezki, 2011. "Sovereign Rating News and Financial Markets Spillovers; Evidence from the European Debt Crisis," IMF Working Papers 11/68, International Monetary Fund.
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