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Financial Repression in the European Sovereign Debt Crisis

Listed author(s):
  • Becker, Bo
  • Ivashina, Victoria

At the end of 2013, the share of government debt held by the domestic banking sectors of Eurozone countries was more than twice the amount held in 2007. We show that increased domestic government bond holdings generated a crowding out of corporate lending. We find that loan supply was depressed by these domestic sovereign bonds only during the crisis period (2010-11). The pattern also holds across firms with different relationship banks within a given countries. These findings suggest that sovereign bond holdings negatively impact private capital formation. We show that direct government ownership, as well as government influence through banks' boards of directors, are among the channels used to influence banks.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 12185.

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Date of creation: Jul 2017
Handle: RePEc:cpr:ceprdp:12185
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  1. Patrick Bolton & Olivier Jeanne, 2011. "Sovereign Default Risk and Bank Fragility in Financially Integrated Economies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(2), pages 162-194, June.
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