Macroeconomic Shocks' Responses of Small and Large Banks in the Bank Based Countries?

Banking institutions play a really important role in the process of providing credit to economic agents and are responsible for recovery after the financial crisis in the Europe. The objective of the paper is to identify the link between the European bank lending activities, main macroeconomic shocks, and institutional variables in the sample of EU-27 countries within the period 1998 2013. To increase macroeconomic implications we removed possible market based economies in final results. In addition, we distinguish between large and small banks in the sample. The microeconomic data are provided by the Bankscope database, macroeconomic shocks and institutional data are drawn from Eurostat on-line database. We employ robust OLS estimator to identtify the main determinants of bank lending activities. The results confirm significant impact of macroeconomic shocks, banking controls and institutional variables on European lending activity. Not surprisingly, the impact of monetary policy interest rates is debatable; this variable proved to be non-significant in all models. Instead, central bank financial assets played an important role in the process of bank lending activities.