We conduct stress tests for a large sample of German banks across different recoveries from the Corona recession. We find that, depending on how quickly the economy recovers, between 6% to 28% of banks could become distressed from defaulting corporate borrowers alone. Many of these banks are likely to require regulatory intervention or may even fail. Even in our most optimistic scenario, bank capital ratios decline by nearly 24%. The sum of total loans held by distressed banks could plausibly range from 127 to 624 billion Euros and it may take years before the full extent of this stress is observable. Hence, the current recession could result in an acute contraction in lending to the real economy, thereby worsening the current recession , decelerating the recovery, or perhaps even causing a “double dip” recession. Additionally, we show that the corporate portfolio of savings and cooperative banks is more than five times as exposed to small firms as that of commercial banks and Landesbanken. The preliminary evidence indicates small firms are particularly exposed to the current crisis, which implies that cooperative and savings banks are at especially high risk of becoming distressed. Given that the financial difficulties may seriously impair the recovery from the Covid-19 crisis, the pressure to bail out large parts of the banking system will be strong. Recent research suggests that the long run benefits of largely resisting these pressures may be high and could result in a more efficient economy.

We employ a unique identification strategy linking survey data on household consumption expenditure to bank‐level data to estimate the effects of bank funding stress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of nonmortgage liabilities. This, however, only translates into lower levels of consumption for low‐income households. Hence, adverse credit supply shocks are associated with significant heterogeneous effects.

Post-crisis stress tests have altered banks’ credit supply to small business. Banks most affected by stress tests reallocate credit away from riskier markets and toward safer ones. They also raise interest rates on small loans. Quantities fall most in high-risk markets where stress-tested banks own no branches, and prices rise mainly where they do. The results suggest that banks price the stress-test induced increase in capital requirements where they have local knowledge, and exit where they do not. Stress tests do not, however, reduce aggregate credit. Small banks seem to increase their share in geographies formerly reliant on stress-tested lenders.

We employ a unique identification strategy linking survey data on household consumption expenditure to bank-level data to estimate the effects of bank funding stress on consumer credit and consumption expenditures. We show that households whose banks were more exposed to funding shocks report lower levels of nonmortgage liabilities. This, however, only translates into lower levels of consumption for low income households. Hence, adverse credit supply shocks are associated with significant heterogeneous effects.

In this paper, we investigate to what extent sovereign stress and banking stress have contributed to the increase in the level and in the heterogeneity of nonfinancial firms’ refinancing costs in the Euro area during the European debt crisis and how they did affect the monetary transmission mechanism. We identify the increasing effect of government bond yield spreads (sovereign stress) and the share of non-performing loans (banking stress) on firms’ financing costs using an instrumental-variable approach. Moreover, we estimate both sources of stress to have significantly impaired the monetary transmission mechanism during the European debt crisis.

Bank instability may induce borrowers to use crowdfunding as a source of external finance. A range of stress indicators help identify banks with potential credit supply constraints, which then can be linked to a unique, manually constructed sample of 157 new ventures seeking equity crowdfunding, for comparison with 200 ventures that do not use crowdfunding. The sample comprises projects from all major German equity crowdfunding platforms since 2011, augmented with controls for venture, manager, and bank characteristics. Crowdfunding is significantly more likely for new ventures that interact with stressed banks. Innovative funding sources are thus particularly relevant in times of stress among conventional financiers. But crowdfunded ventures are generally also more opaque and risky than new ventures that do not use crowdfunding.

With a unique loan portfolio maintained by a top-20 universal bank in Germany, this study tests whether unconventional monetary policy by the European Central Bank (ECB) reduced corporate borrowing costs. We decompose corporate lending rates into refinancing costs, as determined by money markets, and markups that the bank is able to charge its customers in regional markets. This decomposition reveals how banks transmit monetary policy within their organizations. To identify policy effects on loan rate components, we exploit the co-existence of eurozone-wide security purchase programs and regional fiscal policies at the district level. ECB purchase programs reduced refinancing costs significantly, even in an economy not specifically targeted for sovereign debt stress relief, but not loan rates themselves. However, asset purchases mitigated those loan price hikes due to additional credit demand stimulated by regional tax policy and enabled the bank to realize larger economic margins.

This study examines whether and how the stress testing of European banks in 2010, 2011, and 2014 is related to their technical, allocative, and cost efficiency. Using a sample of large commercial banks operating in 20 European countries, and Data Envelopment Analysis (DEA), the authors perform comparisons between banks that were included in one of the three European stress tests and untested banks operating in the same countries. They estimate various specifications as for the inputs and outputs, cross-section and pooled estimations, and they also examine alternative samples as for the ownership of banks. In general, the authors conclude that banks included in the stress-test exercises are more efficient that their counterparties. The differences tend to be statistically significant in the case of allocative efficiency and cost efficiency, but not in the case of technical efficiency. With regards to the latter form of efficiency, the results depend upon the specification and the stress test in question.