Interbank market integration, loan rates, and firm leverage

Steven Ongena and Alexander Popov

No 1252, Working Paper Series from European Central Bank

Abstract: We study the effect of interbank market integration on small firm finance in the build-up to the 2007-2008 financial crisis. We use a comprehensive data set that contains contract terms on individual loans to 6,047 firms across 14 European countries between 1998:01 and 2005:12. We account for the selection that arises in the loan request and approval process. Our findings imply that integration of interbank markets resulted in less stringent borrowing constraints and in substantially lower loan rates. The decrease was strongest in markets with competitive banking sectors. We also find that in the most rapidly integrating markets, firms became substantially overleveraged during the build-up to the crisis. JEL Classification: E51, G15, G21, G34

Keywords: bank competition; firm leverage; interbank markets; loan rates; selection (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-ban, nep-bec, nep-com, nep-eec and nep-ifn
Note: 861282
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Interbank market integration, loan rates, and firm leverage (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20101252

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