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Small firms and domestic bank dependence in Europe’s great recession

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  • Mathias Hoffmann
  • Egor Maslov
  • Bent E. Sørensen

Abstract

Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries where firms borrowed more from domestic banks (“domestic bank dependence”) than in countries where firms borrowed more from international banks. Eurozone banking integration in the years 2000–2008 mainly involved cross-border lending between banks while foreign banks’ lending to the real sector stayed flat. Hence, SMEs remained dependent on domestic banks and were vulnerable to global banking shocks. We confirm, using a calibrated quantitative model, that domestic bank dependence makes sectors and countries with many SMEs vulnerable to global banking shocks.

Suggested Citation

  • Mathias Hoffmann & Egor Maslov & Bent E. Sørensen, 2019. "Small firms and domestic bank dependence in Europe’s great recession," CAMA Working Papers 2019-76, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2019-76
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    Cited by:

    1. Alan Finkelstein Shapiro & Brendan Epstein, 2018. "Banking and Financial Access Reforms, Labor Markets, and Financial Shocks," 2018 Meeting Papers 2, Society for Economic Dynamics.
    2. Epstein, Brendan & Finkelstein Shapiro, Alan, 2017. "Banking and Financial Participation Reforms, Labor Markets, and Financial Shocks," MPRA Paper 88697, University Library of Munich, Germany.
    3. Masuch, Klaus & Anderton, Robert & Setzer, Ralph & Benalal, Nicholai, 2018. "Structural policies in the euro area," Occasional Paper Series 210, European Central Bank.
    4. Tommaso Colozza & Emilio Barucci, 2021. "European financial systems through the crisis: Patterns and convergence," Review of International Economics, Wiley Blackwell, vol. 29(5), pages 1451-1485, November.
    5. Sumei Luo & Yuxi Zhang & Guangyou Zhou, 2018. "Financial Structure and Financing Constraints: Evidence on Small- and Medium-Sized Enterprises in China," Sustainability, MDPI, vol. 10(6), pages 1-20, May.
    6. Pilar Poncela & Filippo Pericoli & Anna Manca & Filippo Michela Nardo, 2016. "Risk Sharing in Europe," JRC Research Reports JRC104621, Joint Research Centre (Seville site).
    7. Torsten Ehlers & Mathias Hoffmann & Alexander Raabe, 2020. "Non-US global banks and dollar (co-)dependence: how housing markets became internationally synchronized," BIS Working Papers 897, Bank for International Settlements.
    8. Demary, Markus & Hornik, Joanna & Watfe, Gibran, 2016. "SME financing in the EU: Moving beyond one-size-fits-all," IW-Reports 11/2016, Institut der deutschen Wirtschaft (IW) / German Economic Institute.
    9. Duijm, Patty & Schoenmaker, Dirk, 2021. "European banks straddling borders: Risky or rewarding?," Finance Research Letters, Elsevier, vol. 38(C).
    10. Cavallaro, Eleonora & Villani, Ilaria, 2021. "Real income convergence and the patterns of financial integration in the EU," The North American Journal of Economics and Finance, Elsevier, vol. 56(C).

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    More about this item

    Keywords

    Small and medium enterprises; SME access to finance; Banking integration; Domestic bank dependence; International transmission; Eurozone crisis;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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