Abstract
A key feature of the recent European crisis has been a sharp divergence in financing conditions for small and medium enterprises (SMEs) across countries. We document the evolution of the interest rate differential on loans below and above €1 million—the Small Firm Financing Premium (SFFP)—across banks and countries. A clear bifurcation in the SFFP between stressed and non-stressed economies, beginning in late 2010, is highlighted. At the bank level, we show that banks with higher domestic market shares charge higher SFFP, with this relationship being particularly strong in Spain, Italy and France, but non-existent in Germany. Strong evidence of a “bank lending channel” is provided, with increases in banks’ non-performing loan (NPL) and credit default swap (CDS) spreads being associated with increases in the SFFP.
Keywords
JEL Codes: G21, G30
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- 2.
- 3.
This is referred to as a ‘multiplier’ effect by Banerjee and Duflo (2010).
- 4.
See ‘The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses’, OECD report, 2009.
- 5.
In this chapter, stressed countries are defined as Greece, Ireland, Italy, Portugal, Slovenia and Spain.
- 6.
Even in stable times, differences in economic and banking structures across countries—including regulatory and fiscal regulations, collateral policies, non-interest expenses, maturity and market structure—can lead to natural and expected differences in interest rate pricing (ECB 2006).
- 7.
For a base interest rate ranging from 3 to 11%.
- 8.
- 9.
- 10.
See the Box in ECB Monthly Bulletin, July 2013 entitled: ‘Small and Medium-Sized Enterprises in the Euro Area: Economic Importance and Financing Conditions’.
- 11.
The shape of the distribution reflects the effect of winsorizing the 1% tails.
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Holton, S., McCann, F. (2017). The Small Firm Financing Premium in Europe: Where and When Do Small Firms Pay the Most?. In: Rossi, S. (eds) Access to Bank Credit and SME Financing. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-41363-1_5
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DOI: https://doi.org/10.1007/978-3-319-41363-1_5
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