COVID-19 and European Banks

41 Pages Posted: 28 Aug 2020 Last revised: 14 Oct 2020

Date Written: October 14, 2020

Abstract

This paper shows how European banks responded to the initial COVID-19 outbreak by focusing on bank capital. Using a bank-level COVID-19 exposure measure, we show that higher exposure to COVID-19 led to an increase in worse-capitalized banks' lending whereas their better-capitalized peers decreased their lending. At the same time, only better-capitalized banks experienced an increase in their delinquent and restructured loans. These findings are in line with the zombie lending literature that banks with low capital have an incentive to increase their lending during contraction times to help their weaker borrowers so that they can avoid loan losses and write-offs on their capital.

Keywords: COVID-19; Bank lending; Europe; Bank capitalization; Zombie lending

JEL Classification: G21, E51

Suggested Citation

Dursun-de Neef, H. Özlem and Schandlbauer, Alexander, COVID-19 and European Banks (October 14, 2020). Available at SSRN: https://ssrn.com/abstract=3681937 or http://dx.doi.org/10.2139/ssrn.3681937

H. Özlem Dursun-de Neef (Contact Author)

Goethe University Frankfurt ( email )

House of Finance, Campus Westend
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Frankfurt am Main 60629
Germany

HOME PAGE: http://sites.google.com/site/oezlemdursundeneef/

Alexander Schandlbauer

University of Southern Denmark ( email )

Campusvej 55
Odense, 5230
Denmark

HOME PAGE: http://sites.google.com/site/alexanderschandlbauer/

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