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 | |
| State | Published - Sep 2020 |
Funding
This paper represents the views of the authors only, and not those of the Bank of Italy or of the Eurosystem. This paper has been screened to make sure that no confidential information has been released. All errors are our own. We thank the University of Chicago, Northwestern University, and Harvard University for financial support. We thank the seminar participants at 2017 MFA meeting, Bank of Italy, IMF, the European Central Bank, the University of Chicago, Kellogg School of Management, Duke University, the Dutch Bank, CUNEF, and Harvard University for helpful comments. We thank Davin Wang and Jun Wong for excellent research assistance. Filippo Mezzanotti and Simone Lenzu thank the University of Chicago, Northwestern University and Harvard University for financial support.? This paper represents the views of the authors only, and not those of the Bank of Italy or of the Eurosystem. This paper has been screened to make sure that no confidential information has been released. All errors are our own. We thank the University of Chicago, Northwestern University, and Harvard University for financial support. We thank the seminar participants at 2017 MFA meeting, Bank of Italy, IMF, the European Central Bank, the University of Chicago, Kellogg School of Management, Duke University, the Dutch Bank, CUNEF, and Harvard University for helpful comments. We thank Davin Wang and Jun Wong for excellent research assistance. Filippo Mezzanotti and Simone Lenzu thank the University of Chicago, Northwestern University and Harvard University for financial support.
Keywords
- Banks
- Credit
- Financial contagion
- Financial fragility
- Security markets
- Sovereign debt
ASJC Scopus subject areas
- Finance
- Economics and Econometrics
