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Financial Repression in the European Sovereign Debt Crisis

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  • Becker, Bo
  • Ivashina, Victoria

Abstract

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.

Suggested Citation

  • Becker, Bo & Ivashina, Victoria, 2017. "Financial Repression in the European Sovereign Debt Crisis," CEPR Discussion Papers 12185, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:12185
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    References listed on IDEAS

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    Cited by:

    1. Ohls, Jana, 2017. "Moral suasion in regional government bond markets," Discussion Papers 33/2017, Deutsche Bundesbank.

    More about this item

    Keywords

    Credit cycles; financial repression; Sovereign debt;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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