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

55 Pages Posted: 23 Oct 2019

See all articles by Mathias Hoffman

Mathias Hoffman

University of Zurich

Egor Maslov

Swiss Finance Institute; University of Zurich

Bent E. Sørensen

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

Multiple version iconThere are 2 versions of this paper

Date Written: 2019

Abstract

Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries where firms borrowed more from domestic banks ("domestic bank dependence") than in countries where firms borrowed more from international banks. Eurozone banking integration in the years 2000–2008 mainly 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 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: small and medium enterprises, SME access to finance, banking integration, domestic bank dependence, international transmission, Eurozone crisis

JEL Classification: F300, F360, F400, F450

Suggested Citation

Hoffman, Mathias and Maslov, Egor and Sorensen, Bent E., Small Firms and Domestic Bank Dependence in Europe's Great Recession (2019). CESifo Working Paper No. 7897. Available at SSRN: https://ssrn.com/abstract=3474203

Mathias Hoffman (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

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

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