When losses turn into loans: The cost of undercapitalized banks

Arbeitspapier

We provide evidence that a weak banking sector has contributed to low productivity growth following the European sovereign debt crisis. An unexpected increase in capital requirements for a subset of Portuguese banks in 2011 provides a natural experiment to study the effects of reduced bank capital adequacy on productivity. Affected banks respond not only by cutting back on lending but also by reallocating credit to firms in financial distress with prior underreported loan loss provisioning. We develop a method to detect when banks delay loss reporting using detailed loan-level data. We then show that the credit reallocation leads to a reallocation of production factors across firms. A partial equilibrium exercise suggests that the resulting increase in factor misallocation accounts for 20% of the decline in productivity in Portugal in 2012.

Angaben zum Objekt

• ISBN: 978-92-899-3490-9
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 2228

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Corporate Finance and Governance: Government Policy and Regulation ; Money Supply; Credit; Money Multipliers ; Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity ; Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
• Thema: bank capital ; productivity ; misallocation ; banking regulation ; non-performing loans

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Blattner, Laura ; Farinha, Luísa A. ; Rebelo, Francisco
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2019

Weitere Informationen

• DOI: doi:10.2866/827615
• Handle: http://hdl.handle.net/10419/208262
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ