Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/208262 
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper No. 2228
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
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.
Subjects: 
bank capital
productivity
misallocation
banking regulation
non-performing loans
JEL: 
G21
G38
E51
D24
O47
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3490-9
Document Type: 
Working Paper

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