Banking Sector Diversity: Does it matter for sector stability and SME financing?

Current Project

Department

Macroeconomics

Project Management

Dorothea Schäfer

Project Period

January 1, 2018 - December 31, 2019

Commissioned by

Wissenschaftsförderung der Sparkassen-Finanzgruppe e.V.

The question of what banking sector diversity actually means and what it implies
for the funding of small and medium sized firms (SMEs) and for banking sector
stability is still open, and this is particularly relevant since the financial crisis has
hit the European countries. In fact, the crisis raised doubts if previous research
that finds comparative advantages for more concentrated banking sectors still applies.
We will study the impact of domestic banking sector diversity on financial
stability as well as on financial access and funding conditions for SMEs in the
Euro area. We also strive to identify those factors that are responsible for triggering
a potential impact of diversity on banking sector stability and on the sector’s
performance in SME funding. For these purposes we use pooled country-level
and individual firm data. We expect to provide empirical evidence on the importance
of banking sector diversity and on drivers of the diversity effect which
will help to formulate stability and growth-enhancing public policies for the Euro
area.

DIW Team