Bank-based versus market-based financing: implications for systemic risk
Joost Bats () and
Aerdt Houben ()
DNB Working Papers from Netherlands Central Bank, Research Department
Against the background of the great financial crisis, this paper assesses the merits of bank-based versus market-based financing by exploring the relationship between financial structure and systemic risk. A fixed effects regression model is estimated over a panel of 22 OECD countries. The results show that bank-based financing generates systemic risk while market-based debt and especially market-based stock financing reduce systemic risk. A threshold regression model estimated over the same panel suggests that banks no longer contribute to systemic risk when there is little bank-based financing. In the case of relatively market-based financial structures, the influence of banks on systemic risk is low. The findings indicate that countries can increase their resilience to systemic risk by reducing the share of bank-based financing and increasing the share of market-based financing.
Keywords: financial structure; systemic risk; bank-based financing; market-based financing (search for similar items in EconPapers)
JEL-codes: E44 G10 G21 O16 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:577
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