Completing the European Banking Union: Capital cost consequences for credit providers and corporate borrowers

Michael Koetter, Thomas Krause, Eleonora Sfrappini and Lena Tonzer

European Economic Review, 2022, vol. 148, issue C

Abstract: The bank recovery and resolution directive (BRRD) regulates the bail-in hierarchy to resolve distressed banks in the European Union (EU). Using the staggered BRRD implementation across 15 member states, we identify banks’ capital cost responses and subsequent pass-through to borrowers towards surprise elements due to national transposition details. Average bank capital costs increase heterogeneously across countries with strongest funding cost hikes observed for banks located in GIIPS and non-EMU countries. Only banks in core E(M)U countries that exhibit higher funding costs increase credit spreads for corporate borrowers and contract credit supply. Tighter credit conditions are only passed on to more levered and less profitable firms. On balance, the national implementation of BRRD appears to have strengthened financial system resilience without a pervasive hike in borrowing costs.

Keywords: European Banking Union; Bail-in; Bank funding costs; Corporate sector transmission (search for similar items in EconPapers)
JEL-codes: F34 G21 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Completing the European Banking Union: Capital cost consequences for credit providers and corporate borrowers (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:148:y:2022:i:c:s0014292122001337

DOI: 10.1016/j.euroecorev.2022.104229

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