The Role of Bank Supply in the Italian Credit Market: Evidence from a New Regional Survey

Abstract

The work analyses the characteristics of supply in the Italian credit market with a focus on the years 2009-2014. By using a new survey, I find that approximately 40 percent of the decline in business lending originates in the tightening of bank credit standards, with a significant decrease in supply after the first semester of 2011. The data also reveal a substantial supply-side heterogeneity: illiquid, profitable, efficient and group-member banks reduce their supply further, as do banks with a low dependence on interest income. Banks in larger groups also display a different supply pattern, with greater tightenings and easings. Capital and funding seem to play no significant role.

Keywords: financial crisis, supply of credit, bank lending, bank fragility, universal banking, capital, regulation, governance

JEL Classification: E32, E51, G01, G21, G28, G32