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The impact of the sovereign debt crisis on the activity of Italian banks

Ugo Albertazzi, Tiziano Ropele (), Gabriele Sene () and Federico Signoretti ()
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Gabriele Sene: Banca d'Italia

No 133, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We assess the effects of the sovereign debt crisis on Italian banks� activity using aggregate data on funding and loan rates, lending quantities and income statements for the period 1991-2011. We augment standard reduced-form equations for the variables of interest with the spread on 10-year sovereign bonds as an additional explanatory variable. We find that, even when controlling for the standard economic variables that influence bank activity, a rise in the spread is followed by an increase in the cost of wholesale and of certain forms of retail funding for banks and in the cost of credit to firms and households; the impact tends to be larger during periods of financial turmoil. An increase in the spread also has a direct negative effect on lending growth, beyond that implied by the rise in lending rates. Finally, we document a negative impact of the spread on banks� profitability, stronger for larger intermediaries.

Keywords: sovereign spread; bank loan rates; bank lending (search for similar items in EconPapers)
JEL-codes: E44 E51 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mac
Date: 2012-09
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Journal Article: The impact of the sovereign debt crisis on the activity of Italian banks (2014) Downloads
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