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The Banking Sector and Recovery in the EU Economy

Published online by Cambridge University Press:  26 March 2020

Ray Barrell ,
Tatiana Fic ,
John Fitz Gerald ,
Ali Orazgani  and
Rachel Whitworth
Ray Barrell*
Affiliation:
NIESR
Tatiana Fic
Affiliation:
NIESR
John Fitz Gerald
Affiliation:
ESRI, Dublin
Ali Orazgani
Affiliation:
NIESR
Rachel Whitworth
Affiliation:
NIESR
*
E-mail: [email protected]
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Abstract

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.

Keywords

Net interest marginsbank sizeEuropean financial integrationeconomic growthbank regulationE44G10G28
Type
Research Articles
Information
National Institute Economic Review , Volume 216 , April 2011 , pp. R41 - R52
Copyright
Copyright © 2011 National Institute of Economic and Social Research

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