Interbank market integration, loan rates, and firm leverage

A. Popov, S. Ongena

Research output: Contribution to journalArticleScientificpeer-review

26 Citations (Scopus)

Abstract

This paper investigates the effect of interbank market integration on small firm finance in the build-up to the 2007–2008 financial crisis. We use a comprehensive data set that contains contract terms on individual loans to 6047 firms across 14 European countries between 1998:01 and 2005:12. We account for the selection that arises in the loan request and approval process. Our findings imply that integration of interbank markets resulted in less stringent borrowing constraints and in substantially lower loan rates. The decrease was strongest in markets with competitive banking sectors. We also find that in the most rapidly integrating markets, firms became substantially overleveraged during the build-up to the crisis.
Original languageEnglish
Pages (from-to)544-559
JournalJournal of Banking and Finance
Volume35
Issue number3
DOIs
Publication statusPublished - 2011

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