Sovereign Debt Exposure and the Bank Lending Channel: Impact on Credit Supply and the Real Economy
June 1, 2016Macro, Trade, and Finance Seminar Series

Speaker: Margherita Bottero is an Economist at Bank of Italy.  More »

Abstract: In the context of the European sovereign crisis, we examine the transmission of a bank balance sheet shock to credit and its effects on corporate policies. Using Italian loan level data, we show that the shock to banks’ sovereign portfolio caused by the Greek bailout (2010) was passed on to firms through a contraction in credit. The contraction of the credit supply was similar in size for both large and small firms. However, it led to a reduction in investments and employment only for smaller firms, especially those relying heavily on external financing. These effects were further exacerbated by the geographical segmentation of the credit market. Investigating the heterogeneity of the credit shock across intermediaries, we found a sharper tightening of credit supply among banks closer to the regulatory capital constraint. We conclude that the interaction of banks’ and firms’ balance sheet is crucial for understanding the transmission of credit shocks to the economy.

*This is a joint event with IMF.


Last Updated: May 27, 2016

The Macro, Trade, and Finance Seminar Series is a weekly series hosted by the World Bank's research department. The series invites leading researchers from the fields of macroeconomics, growth, trade, international integration, and finance to present the results of their most recent research in a seminar format. The full list of seminars can be viewed here.

Last Updated: Jul 27, 2015

Event Details
  • Date: June 1, 2016
  • Location: IMF HQ1 10-713
  • Time: 12:00 – 1:30 pm
  • CONTACT: Shweta Mesipam

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