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Lending relationships and the real economy: evidence in the context of the euro area sovereign debt crisis

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  • Luciana Barbosa

Abstract

The recent euro area sovereign debt crisis put the financial sector under pressure and imposed several challenges, mainly in the countries most affected by the crisis. The sovereign-bank linkage can negatively affect the economic activity, especially by bank-dependent firms. This study explores the heterogeneity across banks in their funding structure, sovereign exposures, solvency, and availability of collateral, with the aim of investigating the effect of the crisis on firms' investment and employment decisions. Exploring a detailed database that covers virtually all bank loans granted to Portuguese firms, for the period 2007-2012, the results suggest an impact on investment and employment paths for firms whose lenders depend more heavily on interbank and market funding. Moreover, the results also stress the importance of assets eligible as collateral in monetary operations conducted by Central Bank. The findings suggest how a deterioration in sovereign creditworthiness can affect the real economy via the banking sector.

Suggested Citation

  • Luciana Barbosa, 2017. "Lending relationships and the real economy: evidence in the context of the euro area sovereign debt crisis," Working Papers w201708, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w201708
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    Cited by:

    1. Farinha, Luísa & Spaliara, Marina-Eliza & Tsoukas, Serafeim, 2019. "Bank shocks and firm performance: New evidence from the sovereign debt crisis," Journal of Financial Intermediation, Elsevier, vol. 40(C).
    2. Diana Bonfim & Sónia Félix & Luísa Farinha, 2019. "Credit and the economy: lessons from a decade of research at Banco de Portugal," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.

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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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