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The Banking Sector And Recovery In The Eu Economy

Author

Listed:
  • Ray Barrell

    (NIESR, r.barrell@niesr.ac.uk)

  • Tatiana Fic

    (NIESR)

  • John Fitz Gerald

    (ESRI, Dublin)

Abstract

Banks within Europe have become larger and more international as Europe has moved towards a unified financial services market, but this trend has been reversed since the crisis. In order to establish the effect of these structural changes on output in Europe, we use a micro data set to investigate the impact of size (as measured by asset size) on banks' net interest margins. We show that larger banks offer lower borrowing costs for firms, which raises sustainable output. We then use NiGEM to look at the impact of banks becoming smaller and moving back into their home territory. We investigate the impacts on output according to country size, showing that the effects are generally larger in small countries, and also larger in economies that are more dependent on bank finance for their business investment decisions.

Suggested Citation

  • Ray Barrell & Tatiana Fic & John Fitz Gerald, 2011. "The Banking Sector And Recovery In The Eu Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 216(1), pages 41-52, April.
  • Handle: RePEc:sae:niesru:v:216:y:2011:i:1:p:r41-r52
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    References listed on IDEAS

    as
    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," World Bank Economic Review, World Bank Group, vol. 13(2), pages 379-408, May.
    2. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
    3. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 581-600, November.
    4. Kasman, Adnan & Tunc, Gokce & Vardar, Gulin & Okan, Berna, 2010. "Consolidation and commercial bank net interest margins: Evidence from the old and new European Union members and candidate countries," Economic Modelling, Elsevier, vol. 27(3), pages 648-655, May.
    5. Barrell, R. & Hall, S.G. & Hurst, I., 2006. "Evaluating policy feedback rules using the joint density function of a stochastic model," Economics Letters, Elsevier, vol. 93(1), pages 1-5, October.
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    Citations

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    Cited by:

    1. Yvonne McCarthy & Kieran McQuinn, 2016. "Attenuation Bias, Recall Error and the Housing Wealth Effect," Kyklos, Wiley Blackwell, vol. 69(3), pages 492-517, August.
    2. FitzGerald, John & Znuderl, Nusa & Duffy, David & CASE (Poland) & CPB (Netherlands) & DIW Berlin (Germany) & ETLA (Finland) & The Kiel Institute for the World Economy (Germany) & NIESR (United Kingdom, 2012. "Economic Assessment of the Euro Area: Winter 2011/2012 Report," Research Series, Economic and Social Research Institute (ESRI), number sustat29.
    3. Ryan, Robert M. & O’Toole, Conor M. & McCann, Fergal, 2014. "Does bank market power affect SME financing constraints?," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 495-505.
    4. FitzGerald, John & Kearney, Ide & Bergin, Adele & Conefrey, Thomas & Duffy, David & Timoney, Kevin & Znuderl, Nusa, 2013. "Medium-Term Review: 2013-2020, No. 12," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR12, April.

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