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Bank Lending and the European Sovereign Debt Crisis

61 Pages Posted: 14 Oct 2015 Last revised: 22 Jul 2017

Filippo De Marco

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Date Written: July 22, 2017

Abstract

I investigate whether bank exposures to sovereign debt during the European debt crisis affected the real economy. I show a shock to the marked-to-market (MTM) value of bank exposures to sovereign debt led to credit tightening in 2010–2011 that had negative real effects on small and young firms. Since banks do not usually mark their holdings of sovereign bonds to market, I explore the transmission channels of the unrealized losses on credit supply. I show that a shock to MTM exposures reduced bank short-term funding from US money market funds rather than affecting equity or working through alternative channels.

Keywords: Sovereign debt; real effects; credit supply; bank funding; regulatory capital

JEL Classification: G21,G30,H63

Suggested Citation

De Marco, Filippo, Bank Lending and the European Sovereign Debt Crisis (July 22, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2673967 or http://dx.doi.org/10.2139/ssrn.2673967

Filippo De Marco (Contact Author)

Bocconi University ( email )

Department of Finance
Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

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