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SME funding without banks? On the interplay of banks and markets

Günter Franke and Jan Krahnen ()

No 44, SAFE White Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: The Capital Markets Union-project of the European Commission aims for an increase of market-based debt financing of small and medium-sized enterprises (SMEs), complementing bank lending. In this essay we argue that rather than focussing on pure non-bank lending, a reasonable mix of bank- and market-based financing should be considered. Banks are said to have a comparative advantage in critical lending functions such as credit screening, debtor monitoring and debt renegotiation. All forms of lending require a persistent skin-in-the-game of critical players in order to be effective. The regulator should insist on full disclosure of skin-in-the-game, thereby improving capital allocation and reducing systemic risks.

Keywords: SME; funding; capital markets; lending instruments; banks (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewh:44

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