SME funding without banks? On the interplay of banks and markets

Günter Franke and Jan Krahnen (krahnen@safe-frankfurt.de)

No 44, SAFE White Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: The Capital Markets Union-project of the European Commission aims for an increase of market-based debt financing of small and medium-sized enterprises (SMEs), complementing bank lending. In this essay we argue that rather than focussing on pure non-bank lending, a reasonable mix of bank- and market-based financing should be considered. Banks are said to have a comparative advantage in critical lending functions such as credit screening, debtor monitoring and debt renegotiation. All forms of lending require a persistent skin-in-the-game of critical players in order to be effective. The regulator should insist on full disclosure of skin-in-the-game, thereby improving capital allocation and reducing systemic risks.

Keywords: SME; funding; capital markets; lending instruments; banks (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-sbm
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewh:44

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