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Sovereign debt exposure and the bank lending channel: Impact on credit supply and the real economy

Margherita Bottero, Simone Lenzu and Filippo Mezzanotti

Journal of International Economics, 2020, vol. 126, issue C

Abstract: In the context of the European crisis, we show that the security portfolio of banks plays an important role in the propagation of financial shocks across countries. Using Italian loan-level data, we show that the shock to the banks' sovereign portfolio caused by the 2010 Greek bailout was passed on to Italian firms through a credit contraction. This was particularly the case for banks with a lower capital and less stable funding. The contraction in credit was similar for both large and small firms, but it only negatively affected the investment and employment decisions of small firms.

Keywords: Banks; Credit; Financial fragility; Security markets; Sovereign debt; Financial contagion (search for similar items in EconPapers)
JEL-codes: E5 G15 G2 G3 (search for similar items in EconPapers)
Date: 2020
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Related works:
Working Paper: Sovereign debt exposure and the bank lending channel: impact on credit supply and the real economy (2015) Downloads
Working Paper: Sovereign Debt Exposure and the Bank Lending Channel: Impact on Credit Supply and the Real Economy (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:126:y:2020:i:c:s0022199618303416

DOI: 10.1016/j.jinteco.2020.103328

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