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

Research output: Contribution to journalArticlepeer-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 languageEnglish (US)
Article number103328
JournalJournal of International Economics
Volume126
DOIs
StatePublished - 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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