 Is small beautiful? The resilience of small banks during the European debt crisisCai Liu and Simone Varotto International Review of Financial Analysis, 2021, vol. 76, issue C Abstract: We examine the lending behaviour of small and large banks in the Eurozone during the sovereign debt crisis. Relative to large banks, small banks are less pro-cyclical in that they exhibit more stable lending growth across credit expansion and contraction periods. In peripheral countries, the portfolio rebalancing of small banks towards higher public debt (substitution effect) does not appear to cause a reduction of their lending to the private sector. Instead, the level of public debt seems to provide a liquidity buffer that influences bank-specific loan growth positively (complementarity effect), particularly during market-wide lending contractions. Our findings show that for small peripheral banks the substitution effect found in the literature can coexist with a complementarity effect when public debt grows faster than private loans. Our analysis contributes to the ongoing debate on the regulatory treatment of public debt in banks and supports incentives embedded in new banking regulation that penalise bank size. Keywords: Bank lending; Eurozone crisis; Government bonds; Sovereign risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:76:y:2021:i:c:s1057521921001290 DOI: 10.1016/j.irfa.2021.101793 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.