Bank ownership type and lending growth during the financial crisis and the sovereign debt crisis

What is it about?

This study examines lending growth in Western European banks over the 2004–2013 period. Using a panel of 18 Western European countries, the study investigates how lending growth was affected by the 2008–2009 financial crisis and the subsequent sovereign debt crisis. Banks are classified into four groups based on ownership type: commercial banks, cooperative banks, private savings banks and publicly owned savings banks. The results suggest that both the financial crisis and the sovereign debt crisis caused a negative shock in Western European lending growth. The shock was weakened by stakeholder banks whose lending growth either did not decrease during the two crises or decreased substantially less than that of commercial banks. Additionally, the results are particularly strong for cooperative banks. Furthermore, stakeholder banks did not contribute to excess credit growth in the lead-up to the two crises. Given their large market shares, stakeholder banks diminish the procyclicality of the banking sector.

Featured Image

Photo by Markus Winkler on Unsplash

Photo by Markus Winkler on Unsplash

Why is it important?

This is the first study examining the effect of the financial crisis and the subsequent sovereign debt crisis on Western European banks' lending growth. The banks are divided into four categories by bank ownership type. The results suggest that lending of stakeholder banks, i.e., cooperative banks and private and publicly owned savings banks, is less cyclical than that of commercial banks.