Sovereign debt exposure and the bank lending channel: Impact on credit supply and the real economy

Margherita Bottero; Simone Lenzu; Filippo Mezzanotti

doi:10.1016/j.jinteco.2020.103328

Sovereign debt exposure and the bank lending channel: Impact on credit supply and the real economy

Margherita Bottero, Simone Lenzu^*, Filippo Mezzanotti

^*Corresponding author for this work

Finance

Research output: Contribution to journal › Article › peer-review

4 Scopus citations

Abstract

In the context of the European crisis, we show that the security portfolio of banks plays an important role in the propagation of financial shocks across countries. Using Italian loan-level data, we show that the shock to the banks' sovereign portfolio caused by the 2010 Greek bailout was passed on to Italian firms through a credit contraction. This was particularly the case for banks with a lower capital and less stable funding. The contraction in credit was similar for both large and small firms, but it only negatively affected the investment and employment decisions of small firms.

Original language	English (US)
Article number	103328
Journal	Journal of International Economics
Volume	126
DOIs	https://doi.org/10.1016/j.jinteco.2020.103328
State	Published - Sep 2020

Keywords

Banks
Credit
Financial contagion
Financial fragility
Security markets
Sovereign debt

ASJC Scopus subject areas

Finance
Economics and Econometrics

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title = "Sovereign debt exposure and the bank lending channel: Impact on credit supply and the real economy",

abstract = "In the context of the European crisis, we show that the security portfolio of banks plays an important role in the propagation of financial shocks across countries. Using Italian loan-level data, we show that the shock to the banks' sovereign portfolio caused by the 2010 Greek bailout was passed on to Italian firms through a credit contraction. This was particularly the case for banks with a lower capital and less stable funding. The contraction in credit was similar for both large and small firms, but it only negatively affected the investment and employment decisions of small firms.",

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author = "Margherita Bottero and Simone Lenzu and Filippo Mezzanotti",

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AU - Bottero, Margherita

AU - Lenzu, Simone

AU - Mezzanotti, Filippo

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KW - Security markets

KW - Sovereign debt

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