Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154230
Authors: 
Langfield, Sam
Pagano, Marco
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1797
Abstract: 
Europe’s financial structure has become strongly bank-based – far more so than in other economies. We document that an increase in the size of the banking system relative to equity and private bond markets is associated with more systemic risk and lower economic growth, particularly during housing market crises. We argue that these two phenomena arise owing to an amplification mechanism, by which banks overextend and misallocate credit when asset prices rise, and ration it when they drop. The paper concludes by discussing policy solutions to Europe’s “bank bias”, which include reducing regulatory favouritism towards banks, while simultaneously supporting the development of securities markets.
Subjects: 
bank regulation
banks
financial structure
systemic risk
JEL: 
G1
G2
ISBN: 
978-92-899-1610-3
Document Type: 
Working Paper

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