Bank Bias in Europe: Effects on Systemic Risk and Growth
Sam Langfield () and
Marco Pagano ()
CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy
Europe’s financial structure has become strongly bank-based – far more so than in other economies. We document that an increase in the size of the banking system relative to equity and private bond markets is associated with more systemic risk and lower economic growth, particularly during housing market crises. We argue that these two phenomena arise owing to an amplification mechanism, by which banks overextend and misallocate credit when asset prices rise, and ration it when they drop. The paper concludes by discussing policy solutions to Europe’s “bank bias”, which include reducing regulatory favouritism towards banks, while simultaneously supporting the development of securities markets.
Keywords: banks; financial structure; systemic risk; bank regulation (search for similar items in EconPapers)
JEL-codes: G1 G2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17) Track citations by RSS feed
Published in Economic Policy, 2016, 31(85), pp. 51-106
Downloads: (external link)
Journal Article: Bank bias in Europe: effects on systemic risk and growth (2016)
Working Paper: Bank bias in Europe: effects on systemic risk and growth (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:408
Access Statistics for this paper
More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC.
Bibliographic data for series maintained by Lia Ambrosio ().