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A Turning Point for Banking: Unravelling the Changing Landscape of Banking Activity in Europe since the COVID-19 pandemic

Andrea Bellucci and Gianluca Gucciardi

No 183, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This study investigates the impact of the COVID-19 pandemic on the European banking system, focusing on lending activities and risk-taking behavior. We use a difference-in-differences (DID) approach to compare the performance of banks highly impacted by the pandemic with those operating in less affected countries. Our results indicate a negative impact on lending activities, as banks reduced their exposure to both individuals and businesses. Nonetheless, the impact on banks' risk-taking was heterogeneous, as certain banks increased their risks taking by relaxing their lending standards in order to support their borrowers, while others adopted stricter lending criteria. The reduction in total lending observed for the entire banking system is primarily drive by less capitalized banks and those with limited access to public guarantees schemes. Different characteristics, such as size, profitability, and listing status, led to varied lending behaviors during the COVID-19 pandemic, with smaller and more profitable banks exhibiting greater resilience. In summary, our findings suggest that the COVID-19 pandemic has significantly impacted the European banking system, resulting in decreased lending activities and a varied effect on risk.

Keywords: Banks; Finance; Risks; Lending activities; Financial Crisis; Pandemic (search for similar items in EconPapers)
JEL-codes: F3 G21 G22 G23 G24 (search for similar items in EconPapers)
Pages: 46
Date: 2023-12
New Economics Papers: this item is included in nep-ban, nep-eec and nep-eur
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