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Bank localism and financial crisis

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  • Cristina Demma

    (Bank of Italy)

Abstract

This paper analyzes whether from the end of 2005 to the first half of 2012 bank localism influenced the dynamics and the quality of loans to Italian firms. To this aim, this paper proposes a new definition for local banks that, respect to the traditional classifications employed in literature, has the advantage to classify medium and small banks according to the number and the size of markets where they operate, regardless banks� institutional category and size. The main result is that, after controlling for demand elements and the initial bank balance sheet characteristics, credit supply was influenced by banks� size while bank localism was not significant. During the crisis, the loan default rate was substantially higher for medium and small banks; among these banks, for local banks the deterioration in credit quality was smaller with respect to non-local banks.

Suggested Citation

  • Cristina Demma, 2015. "Bank localism and financial crisis," Questioni di Economia e Finanza (Occasional Papers) 264, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_264_15
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2015-0264/QEF_264.pdf
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    More about this item

    Keywords

    local banks; crisis; credit crunch;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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