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Financial Repression in the European Sovereign Debt Crisis

Bo Becker and Victoria Ivashina

No 12185, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: At the end of 2013, the share of government debt held by the domestic banking sectors of Eurozone countries was more than twice the amount held in 2007. We show that increased domestic government bond holdings generated a crowding out of corporate lending. We find that loan supply was depressed by these domestic sovereign bonds only during the crisis period (2010-11). The pattern also holds across firms with different relationship banks within a given countries. These findings suggest that sovereign bond holdings negatively impact private capital formation. We show that direct government ownership, as well as government influence through banks' boards of directors, are among the channels used to influence banks.

Keywords: Credit cycles; financial repression; Sovereign debt (search for similar items in EconPapers)
JEL-codes: G21 G28 G30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-eec
Date: 2017-07
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