The Impact of the Sovereign Debt Crisis on the Activity of Italian Banks

36 Pages Posted: 10 Oct 2012

Date Written: September 18, 2012

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

JEL Classification: E44, E51, G21

Suggested Citation

Albertazzi, Ugo and Ropele, Tiziano and Sene, Gabriele and Signoretti, Federico Maria, The Impact of the Sovereign Debt Crisis on the Activity of Italian Banks (September 18, 2012). Bank of Italy Occasional Paper No. 133. Available at SSRN: https://ssrn.com/abstract=2159734 or http://dx.doi.org/10.2139/ssrn.2159734

Ugo Albertazzi (Contact Author)

ECB -DG Monetary Policy ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Tiziano Ropele

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Gabriele Sene

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Federico Maria Signoretti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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