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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Small firms and domestic bank dependence in Europe’s Great Recession |
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| Institution | University of Zurich |
| Series Name | Working paper series / Department of Economics |
| Number | 397 |
| ISSN | 1664-705X |
| Number of Pages | 60 |
| Date | 2021 |
| Abstract Text | After the inception of the euro, the real economy in most member countries remained dependent on credit by domestic banks, which increasingly funded themselves through cross-border interbank funding. We find that this pattern of ‘double-decker’ banking integration exposed domestic banks to sharp declines in cross-border interbank lending during the eurozone crisis. As a result, domestic banks reduced lending which led to large declines in output in sectors with many small (bank-dependent) firms. We propose a quantitative small open economy model to account for these patterns and conclude that a global banking shock leading to a sudden stop in cross-border interbank lending in the eurozone is required to account for them. |
| Other Identification Number | merlin-id:21575 |
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| Keywords | Small and medium enterprises, sme access to finance, banking integration, domestic bank dependence, interbank dependence, international transmission, eurozone crisis |