The impact of the sovereign debt crisis on the activity of Italian banks |
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Affiliation: | 1. Department of Economic Theory, University of Barcelona, Spain;2. Complutense Institute of International Economics, Universidad Complutense de Madrid, Spain;1. German Institute for Economic Research, Germany;2. Freie Universität Berlin, Germany;1. Bank of England, UK;2. CFM, UK;1. Helmut-Schmidt-Universität, Holstenhofweg 85, 22043 Hamburg, Germany;2. Deutsche Bundesbank – Hannover, Georgsplatz 5, 30159 Hannover, Germany;3. Centre for Applied Macroeconomic Analysis, Australian National University, Canberra, Australia;4. Deutsche Bundesbank, Wilhelm-Epstein-Str. 14, 60431 Frankfurt am Main, Germany;5. Reserve Bank of New Zealand, 2 The Terrace, PO Box 2498, Wellington 6140, New Zealand |
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Abstract: | We examine the implications of the sovereign debt tensions on the Italian credit market by estimating the effect of the 10-year BTP-Bund spread on a wide array of bank interest rates, categories of loans and income statement variables. We exploit the heterogeneity between large and small intermediaries to assess to what extent the transmission of sovereign risk differed in relation with different banks’ balance-sheet characteristics and business strategies. Regarding the cost of funding, we find that changes in the BTP-Bund spread have a sizeable effect on the interest rates on term deposits and newly issued bonds but virtually no effect on overnight deposits. Furthermore, the sovereign spread significantly affects the cost of credit for firms and households and exerts a negative effect on loan growth. All these results are magnified when considering alone the five largest banks, which are typically less capitalized, have a larger funding gap and incidence of bad loans and rely more on non-traditional banking activities. Sovereign tensions also affect the main items of banks’ income statement. |
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Keywords: | Interest rate pass-through Sovereign debt crisis Banking activity |
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