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Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007–09

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  • PHILIPPE BACCHETTA
  • OUARDA MERROUCHE

Abstract

Using syndicated loan‐level data, we document and explain the causes and implications of a new and surprising stylized fact. In the midst of the financial crisis, dollar borrowing by leveraged Eurozone (EZ) corporates rose dramatically relative to their euro borrowing. We show that this resulted from a shift from EZ to non‐EZ banks, mainly U.S. banks. This was combined with an increase in the proportion of dollar lending by non‐EZ banks, explained by a rise in the relative cost of euro wholesale funding and the disruptions in the FX swap market. Non‐EZ banks thus dampened the 2007–09 credit crunch in Europe.

Suggested Citation

  • Philippe Bacchetta & Ouarda Merrouche, 2022. "Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007–09," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(1), pages 203-245, February.
    • Handle: RePEc:wly:jmoncb:v:54:y:2022:i:1:p:203-245
    DOI: 10.1111/jmcb.12818
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