The Impact of Sovereign Debt Exposure on Bank Lending: Evidence from the European Debt Crisis

54 Pages Posted: 5 Jul 2013

See all articles by Alexander A. Popov

Alexander A. Popov

European Central Bank (ECB)

Neeltje van Horen

Bank of England; Centre for Economic Policy Research (CEPR)

Date Written: July 2, 2013

Abstract

Using loan-level data, we find that syndicated lending by European banks with sizeable balance sheet exposures to impaired sovereign debt was negatively affected after the start of the euro area sovereign debt crisis. We also observe a reallocation away from foreign (especially US) markets. The overall reduction in lending is not driven by changes in borrower demand and/or quality, or by other types of shocks to bank balance sheets. The slowdown in lending is lower for banks that reduced their debt holdings in the later stages programs.

Keywords: Sovereign debt, bank lending, international transmission

JEL Classification: E44, F34, G21, H63

Suggested Citation

Popov, Alexander A. and van Horen, Neeltje, The Impact of Sovereign Debt Exposure on Bank Lending: Evidence from the European Debt Crisis (July 2, 2013). De Nederlandsche Bank Working Paper No. 382, Available at SSRN: https://ssrn.com/abstract=2289290 or http://dx.doi.org/10.2139/ssrn.2289290

Alexander A. Popov (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Neeltje Van Horen

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://www.bankofengland.co.uk/research/Researchers/neeltje-van-horen

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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