Giovanni Ferri

The Banking Regulatory Bubble and How to Get out of It

We claim that we currently live in a banking regulatory bubble.We review how: i) banking intermediation theory hinges on dealing with borrower-lender asymmetry of information; ii) instead, the presence of complete information is keystone of finance theory. Next, we document how finance theory prevailed over banking intermediation theory in shaping banking regulation: This appalling contradiction is the true culprit behind lower credit standards, mounting systemic risk in banking, and macroeconomic debt overhang. Consequently, we discuss actions that, by restoring the consistency of banking regulation with the theory of banking intermediation, would make banking sounder.

Bank Lending Technologies and SME Credit Rationing in Europe in the 2009 Crisis

The first wave of the global financial crisis hit Europe in the last part of 2008 and through 2009. With banks in a tailspin, credit rationing intensified – as measured in various different ways – particularly for the small and medium sized enterprises (SMEs). The extent of such retrenchment in the supply of credit could reflect not only the worsened general condition of the European banks but also vary at the micro level depending on the lending technologies being used in the SME-main bank rapport. Using the EFIGE database, we examine SME credit rationing in seven EU countries (Austria, France, Germany, Hungary, Italy, Spain and the UK) and try to assess the extent to which differences in the lending technologies and in the status of the firm-main bank relationship contributed to the phenomenon. We find that a firm matching with a bank using the transactional lending technology was more likely to end up rationed for credit during the first part of the financial crisis.

What’s Special About Banking in Italy? Lending Technologies, Complementarity, and Impact of Soft Information

This paper investigates the firm-main bank relationship in a sample of Italy’s SMEs. The findings suggest that banks lend to SMEs via different lending technologies. These results support the hardening-of-soft-information view, whereby also transactional lenders might somehow use difficult to codify qualitative information – traditionally believed a prerogative of relational banks – on borrowing enterprises. However, the soft information lowers (raises) the probability of rationing if the firm’s main bank uses relationship (transactional) lending technologies. Thus, the way the soft information becomes embodied in the lending decision might still differ between relational vs. transactional banks.