Supranational Banking Supervision, Credit Supply and Risk-Taking: European Evidence from Multi-Country Credit Registers

Carlo Altavilla, Miguel Boucinha (), Jose-Luis Peydro, Martina Jasova and Frank Smets

No 14288, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We show that supranational banking supervision can increase credit supply while mitigating excessive risk-taking, identifying the underlying mechanisms. For identification, we exploit a novel dataset of multi-country credit registers and an institutional change from national to supranational supervision. Supranational supervision increases credit supply only in financially stressed countries, while reducing the supply of credit to the riskiest (zombie) firms. These improved lending effects in stressed vs. non-stressed countries stem from weaker national institutions, differential national supervisory incentives, lower national supervisory abilities, and weaker national insolvency laws. Moreover, improved access to external finance from wholesale and bond markets as well as lower risk-weighted assets allow supranationally supervised banks to expand the supply of credit. Overall, despite some supranational supervisory arbitrage, supranational supervision decreases firm-level credit to the riskiest firms, while increasing firm-level credit availability in stressed countries without reducing it in non-stressed countries.

Keywords: supervision; Banking; Anacredit; Monetary policy; Euro area crisis (search for similar items in EconPapers)
JEL-codes: E51 E52 E58 G01 G21 G28 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-big, nep-mac and nep-mon
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Citations: View citations in EconPapers (25)

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