Small Firms and Domestic Bank Dependence in Europe's Great Recession

50 Pages Posted: 30 Apr 2019

See all articles by Bent E. Sørensen

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Mathias Hoffmann

University of Zurich

Egor Maslov

Swiss Finance Institute; University of Zurich

Multiple version iconThere are 2 versions of this paper

Date Written: April 2019

Abstract

Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries that borrowed more from domestic banks ("domestic bank dependence") compared with countries that borrowed more from international banks. Eurozone banking integration in the years 2000-2008 involved cross-border lending between banks while foreign banks' lending to the real sector stayed flat. Hence, SMEs remained dependent on domestic banks and were vulnerable to global banking sector shocks. We confirm, using a calibrated quantitative model, that domestic bank dependence makes sectors and countries with many SMEs vulnerable to global banking shocks.

Keywords: Banking integration, domestic bank dependence, International Transmission, Small and medium enterprises, sme access to finance

JEL Classification: F30, F36, F40, F45

Suggested Citation

Sorensen, Bent E. and Hoffmann, Mathias and Maslov, Egor, Small Firms and Domestic Bank Dependence in Europe's Great Recession (April 2019). CEPR Discussion Paper No. DP13691, Available at SSRN: https://ssrn.com/abstract=3379606

Bent E. Sorensen

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Mathias Hoffmann (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

Egor Maslov

Swiss Finance Institute ( email )

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

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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