Today the ESRI has published a research bulletin summarising a paper entitled: THE BANKING SECTOR AND RECOVERY IN THE EU ECONOMY By Ray Barrell (NIESR), Tatiana Fic (NIESR), John Fitz Gerald (ESRI), Ali Orazgani (NIESR) and Rachel Whitworth (NIESR)
This paper considers how banks within Europe have become larger and more international as Europe has moved towards a unified financial services market, but this trend has been reversed since the crisis. In order to establish the effect of these structural changes on output in Europe, we use a micro data set to investigate the impact of size (as measured by asset size) on banks’ net interest margins. We show that larger banks offer lower borrowing costs for firms, which raises sustainable output. We then use NiGEM to look at the impact of banks becoming smaller and moving back into their home territory. We investigate the impacts on output according to country size, showing that the effects are generally larger in small countries, and also larger in economies that are more dependent on bank finance for their business investment decisions.
The Research Bulletin is available here.
The full version of the article is available at a fee here.
2 replies on “The Banking Sector and Recovery in the EU Economy”
Again mixing up the concept of efficiency & production.
That capital allocation has not been efficient although the production has been epic.
Witness French national nuclear plant production in the 70s and 80s and export of their capital to the periphery to get a return.
Me thinks the first more national effort was a more efficient use of resourses – the latter has not and the losses are just starting.
Indeed how can you make such statements when Soc Gen is on the brink – amazing , I’m lost here………..where I am I again ? … yes bankers paradise , lost in a bankers paradise.
Also competion for credit is a dangerous concept , how can you have the competion for credit when banks can do so at will.
Credit production should be under national control – not under a essentially free banking doctrine that was outlawed in the 19th century for the chaos it caused – but of course this is the Euro systems doctrine under their denationalization of money mantra.
They were loaning against assets that were being blown up by competitor banks – they should only loan against their rental yield not their artifical asset value.
PS Steve Keens anylasis would suggest interest rates are tertiary to credit bubbles – its the production of credit which creates credit bubbles – quite extraordinary I know but…………..