Credit Misallocation During the European Financial Crisis

64 Pages Posted: 10 Mar 2017

See all articles by Fabiano Schivardi

Fabiano Schivardi

Einaudi Institute for Economics and Finance (EIEF); Luiss Guido Carli - Department of Economics and Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Centre for Economic Policy Research (CEPR)

Enrico Sette

Bank of Italy

Guido Tabellini

Bocconi University - Department of Economics; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

Multiple version iconThere are 6 versions of this paper

Date Written: March 10, 2017

Abstract

Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2004-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks were less likely to cut credit to non-viable firms. (ii) Credit misallocation increased the failure rate of healthy firms and reduced the failure rate of non viable firms. (iii) Nevertheless, the adverse effects of credit misallocation on the growth rate of healthier firms were negligible, and so were the effects on TFP dispersion. This goes against previous influential findings that, we argue, face serious identification problems. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocation was modest.

Keywords: Bank capitalization, zombie lending, capital

JEL Classification: D23, E24, G21

Suggested Citation

Schivardi, Fabiano and Sette, Enrico and Tabellini, Guido, Credit Misallocation During the European Financial Crisis (March 10, 2017). Available at SSRN: https://ssrn.com/abstract=2930804 or http://dx.doi.org/10.2139/ssrn.2930804

Fabiano Schivardi (Contact Author)

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Luiss Guido Carli - Department of Economics and Finance ( email )

Viale Romania 32
Rome, Rome 00187
Italy

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

Via Roentgen 1
Milan, 20136
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Guido Tabellini

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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

Via Roentgen 1
Milan, 20136
Italy

Center for Economic Studies and Ifo Institute for Economic Research (CESifo)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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