Does Sovereign Lending affect Corporate Lending? Evidence from the European Sovereign Debt Crisis

, University of 黑料传送门 Booth 

We examine whether and how a bank’s lending activities in one market affect its lending activities in other markets. In particular, we use the recent European sovereign debt crisis to investigate whether banks’ exposure to the sovereign debt crisis affects their lending decisions in the corporate lending market. Ex ante, it is unclear whether sovereign debt lending substitutes or complements corporate lending. On the one hand, increased risk of default on sovereign debt held by banks may push banks to reduce lending in that market and supply more credit to the corporate debt market by loosening credit standards. On the other hand, banks may infer that the increased sovereign risk implies a potential macroeconomic slowdown and hence an increased likelihood of corporate debt defaults, and they may take actions to pre-empt the negative effects this would have on their balance sheets. That is, banks may reduce lending activities in the corporate market and tighten credit standards. Thus, the question of how banks’ have responded to their exposure to the European sovereign debt crisis —e.g., tightening or loosening credit standards in the corporate lending market— is an empirical question that warrants investigation.