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Bank lending in the Great Recession and in the Great Depression

Author

Listed:
  • Riccardo De Bonis

    (Bank of Italy)

  • Giuseppe Marinelli

    (Bank of Italy)

  • Francesco Vercelli

    (Bank of Italy)

Abstract

The effects of the Great Depression (GD, 1929–1936) on the Italian banking system were worse than those of the Great Recession (GR, 2007–2014), in terms of loan and deposit contraction and of bank failures. When the GD hit the Italian economy in 1929–1930, regulatory restrictions on bank activity were mild, whereas a stricter regulatory framework was in force at the beginning of the GR and notably included bank supervision, capital requirements and deposit insurance. We test the effectiveness of the modern institutional setting by comparing lending policies in the two crises using micro data on bank balance sheets. We find that in the GR banks with higher pre-crisis capital ratios were able to expand lending more than undercapitalized banks, whereas in the GD there were no differences between high and low-capitalized banks.

Suggested Citation

  • Riccardo De Bonis & Giuseppe Marinelli & Francesco Vercelli, 2023. "Bank lending in the Great Recession and in the Great Depression," Empirical Economics, Springer, vol. 64(2), pages 567-602, February.
    • Handle: RePEc:spr:empeco:v:64:y:2023:i:2:d:10.1007_s00181-022-02268-8
    DOI: 10.1007/s00181-022-02268-8
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    Cited by:

    1. Riccardo De Bonis & Maurizio Trapanese, 2024. "The Four Ages of Banking Regulation: What to Do Today?," Banca Impresa Società, Società editrice il Mulino, issue 1, pages 51-80.
    2. Alessio D'Ignazio & Daniela Marconi & Massimiliano Stacchini, 2024. "Micro-entrepreneurs and the twin green and digital transitions. Does financial literacy play a role?," Questioni di Economia e Finanza (Occasional Papers) 858, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Great Depression; Great Recession; Lending; Bank capital;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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