Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007-2009

50 Pages Posted: 7 Jan 2016

See all articles by Philippe Bacchetta

Philippe Bacchetta

University of Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Ouarda Merrouche

University of Lausanne

Multiple version iconThere are 2 versions of this paper

Date Written: October 2015


Despite international financial disintegration, we document a dramatic increase in dollar borrowing among leveraged Eurozone corporates during the Great Financial Crisis. Using loan-level data, we trace this increase to the twin crisis in the credit market and in funding markets. The reduction in the supply of credit by Eurozone banks caused riskier borrowers to shift to foreign banks, in particular US banks. The coincident rise in the relative cost of euro wholesale funding and the disruptions in the FX swap market caused a rise in dollar borrowing from US banks, especially for firms in export-oriented sectors. Although global bank lending is often reported to amplify the international credit cycle, we show that foreign banking acted as a shock absorber that weathered the real consequences of the credit crunch in Europe.

Keywords: Money market, swaps, credit crunch, corporate debt, foreign banks

JEL Classification: G21, G30, E44

Suggested Citation

Bacchetta, Philippe and Merrouche, Ouarda, Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007-2009 (October 2015). Swiss Finance Institute Research Paper No. 15-63. Available at SSRN: or

Philippe Bacchetta (Contact Author)

University of Lausanne ( email )

Faculty of Business and Economics
Internef 523
1015 Lausanne


Centre for Economic Policy Research (CEPR)

United Kingdom

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

Ouarda Merrouche

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015

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