Udell 2020 Sme Access To Finance and The Global Financial Crisis

Journal of Financial Management, Markets and Institutions
Vol. 8, No. 1 (2020) 2040003 (25 pages)

.c The Author(s)
#
DOI: 10.1142/S2282717X20400034
SME ACCESS TO FINANCE AND THE GLOBAL

FINANCIAL CRISIS
by 162.243.4.164 on 11/10/23. Re-use and distribution is strictly not permitted, except for Open Access articles.
GREGORY F. UDELL
Kelley School of Business, Indiana University
J. Fin. Mngt. Mar. Inst. 2020.08. Downloaded from www.worldscientific.com
1305 E. Tenth Street, Bloomington, IN 47405, USA

gudell@indiana.edu
Received 21 May 2020

Accepted 28 May 2020
Published 14 August 2020
This paper o®ers an overview of research on SME access to ¯nance during the Global Financial
Crisis (GFC) in order to cull key things that we have learned. It discusses selected articles that
peg the frontier of knowledge on this topic in both European and American contexts. It high-
lights di®erences between these two areas in terms of how the crisis unfolded. It also identi¯es
key di®erences in the availability of data between Europe and the US that shape the nature of
the empirical analysis of the attendant credit crunch. Selected research on both the nature and
magnitude of the impact of the credit crunch on the SME sector are discussed. Research on some
key policy initiatives to mitigate the crisis' damage in Europe and in the US are also discussed.
The paper concludes with some comments on how research on the GFC might inform research
on SME access to ¯nance during the unfolding COVID-19 crisis.
1. Introduction
It has now been 13 years since the ¯rst signs of the Global Financial Crisis (GFC)
began to show in the fall of 2007. In the US, the crisis grew rapidly over the next year
reaching a zenith with the failure of Lehman Brothers in September 2008. There were
signs of the crisis developing in Europe during the 12 months before Lehman's failure
[see e.g. Popov & Udell (2012)], but there was no doubt that it had arrived in Europe
by the time of the \Lehman moment" [see e.g. Presbitero et al. (2014)]. As the crisis
spread it became clear in both Europe and the US that the e®ects on SME access to
¯nance were signi¯cant. And as data became available researchers began to empir-
ically examine the impact of the crisis and how it di®ered across ¯rms and across
countries. Research also began to address the e±cacy of numerous policy initiatives
to mitigate the damage to SMEs caused by a contraction of the supply of bank credit.
This is an Open Access article published by World Scienti¯c Publishing Company. It is distributed under
the terms of the Creative Commons Attribution 4.0 (CC BY) License which permits use, distribution and
reproduction in any medium, provided the original work is properly cited.
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G. F. Udell
The purpose of this paper is to highlight ¯ndings in the research on the overall
e®ect of the GFC on SME access to ¯nance in both Europe and the US.a The paper
also examines the literature on the e®ects of some of the most important policy
initiatives that were designed to mitigate the negative e®ects on access to ¯nance.
And, ¯nally, the paper o®ers some thoughts in the conclusion on how research on
SME access to ¯nance and the GFC might guide future research on how the COVID-
19 crisis is a®ecting SME access to ¯nance.
The body of research on the GFC's e®ect on SME access to ¯nance is now quite
large. An exhaustive review of this literature is beyond the scope of this paper. One
important objective of this paper, instead, is to provide an overview of this literature
by discussing selected papers that re°ect the general ¯ndings in the literature on the
impact of the credit crunch associated with the GFC and how research can inform us
on the success of key policy initiatives to mitigate these e®ects. A second objective is
to provide some key distinctions between the research in Europe and the US on this
topic. The paper will point out that some of these distinctions are driven by di®er-
ences in the ways that the GFC unfolded in Europe and in the US. It will also
highlight di®erences in the literature and methodologies employed that are driven by
di®erences in data availability across these two areas.
With regard to the structure of the paper, Sec. 2 provides some context by
discussing the importance of the SME sector in Europe and in the US. Section 3
follows with a short discussion of the evolution of the crisis as it played out in the US
and then played out in Europe. This discussion will help frame the research in both
areas on the respective credit crunches and mitigation policies. Section 4 addresses
di®erences in the type of data that are available to researchers in both areas. The
main point in this section is that with respect to studying SME access to ¯nance
during the GFC, the data in Europe are, overall, more powerful. Much of the data
from Europe enables researchers to match ¯rms with their banks so that (i) credit
supply and demand can be disentangled and (ii) the transmission of shocks to banks
on ¯rms can be studied. And, unlike US data, European data on ¯rms' ¯nancial
statements are generally available allowing for ¯rm-level ¯nancial controls and
analysis of ¯rm-level real e®ects. Then Sec. 5 will look at what the research tell us in
both areas about how access to ¯nance was a®ected by the crisis. Section 6 discusses
the literature on mitigation policies that were designed to ease the ¯nancial damage
in both the areas. In the interest of space, this discussion will focus on the two
and, arguably, the biggest policy initiatives: (in chronological order) the TARP
program in the US; and the Outright Monetary Transactions (OMT) program in the
Eurozone. Speci¯cally, the paper looks at the empirical evidence on the e®ectiveness
of these two initiatives in mitigating the e®ects of the credit crunch. The conclusion
a Itshould be noted that Japan su®ered a severe ¯nancial crisis during the 1990s. This crisis shared many
things in common with the GFC including its genesis (a real estate bubble that popped), its implosion of
the banking system and the nature of some of the policy initiatives designed to mitigate damage in the real
economy. Discussion of the literature on the Japanese ¯nancial crisis, however, is beyond the scope of this
paper. For a discussion of this crisis, see Uchida & Udell (2019).
2040003-2
SME Access to Finance and the Global Financial Crisis
o®ers some thoughts on the current COVID-19 crisis as it relates to SME access to
¯nance. At the time of this writing there is serious concern about how the current
COVID-19 crisis is fueling a potentially severe recession. This recession could, in
turn, could easily fuel another banking crisis.b
2. The Importance of SMEs and the Nature of SME Finance

As is well known, SMEs are enormously important in Europe. They represent about
two-thirds of all private sector jobs in Europe and 99% of the businesses. Most SMEs
in Europe
90%
are micro-¯rms with 10 or less employees. Perhaps less well
known is that SMEs are quite important economically in the US. SMEs represent
about half of the private sector jobs in the US. Interestingly about two-thirds of new
private sector jobs are generated by SMEs in the US. Thus, though not as important
as in Europe, SMEs are nevertheless quite important economically in the US. It is
also evident in listening to the political dialog today in the US
and, for that
matter, the early policy issues in addressing the current COVID-19 crisis that
SMEs receive an enormous amount of political attention
perhaps even as much as
in Europe.
Because SMEs are informationally opaque, it is not surprising that in both
Europe and the US they are bank-dependent. According to the ECB's Survey on the
Access to Finance of Enterprises (SAFE) dataset about 55% of Eurozone SMEs use
bank credit to ¯nance speci¯c projects or investments. In the US about 37% of SME
external ¯nance is bank debt (Berger & Udell 1998). The next most important source
of SME ¯nance in both Europe and the US is trade credit. Trade credit accounts for
31% of external ¯nance in the US (Berger & Udell 1998) and almost exactly the same
amount in Spain (Carbo-Valverde et al. 2016). There are some interesting di®erences
between Europe, particularly continental Europe, and the US. For example, venture
capital in Europe particularly continental Europe looks quite di®erent from
venture capital in the US. And ¯nancial crises can certainly have a profound e®ect on
these venture capital markets. When stock markets fall precipitously, deal °ow in the
venture capital market falls with it as do the stock market multiples on which pricing
is set in the VC market. But, even in the US, formal venture capital ¯nancing
to start-up ¯rms is relatively small both in terms of the number of deals and in
aggregate amount.
b For example, an article appeared on April 6 in the US press about the European bank stress tests and
whether European banks are prepared for a \hypothetical perfect storm that included a steep economic
downturn, plunging stock prices and a collapse in consumer spending" (Ewing 2020). The article noted
that European bank regulators were planning for the upcoming stress tests (since postponed) with a worst-
case scenario that included a 4.3% decline in output while some economists are predicting a \10 percent
[decline] in the ¯rst half of this year because of the pandemic, threatening an explosion of bad loans . . ."
Concern could also be raised about whether the US stress tests will provide the intended resilience after the
passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act (2018) which rolled
back some key parts of the stress testing activity formalized in the Dodd-Frank Act.
2040003-3
G. F. Udell
Given the importance of bank ¯nancing and trade credit, much of the discussion
below on how access to ¯nance changed during the GFC will focus on these two
sources.
3. The Crisis Evolution

Because the GFC unfolded di®erently in Europe than it did in the US, and because
the crisis essentially started in the US, the evolutions of the crisis in these two areas
will be treated separately starting with the US. The purpose of this section is to
highlight some of the key similarities and some of the key di®erences between the
evolutions of the crisis on each side of the Atlantic. In addition, this section will help
frame our discussion of the two key policy initiatives that are the focus of Sec. 6 that
were designed to mitigate the damage from the respective credit crunches in both
areas.
3.1. The US timeline

The genesis of the crisis in the US was a real estate bubble that burst that was
signi¯cantly exacerbated by a pre-crisis surge in subprime mortgage lending. Most of
these subprime residential mortgages were securitized in subprime mortgage-backed
securities (MBS) and many of these bonds were purchased by special investment
vehicle (SIV) subsidiaries of bank holding companies. Losses in subprime lending dug
deep into even the higher-rated subprime MBS bought by these bank SIVs. The
earliest sign of a potential problem was the reversal of residential housing prices that
appeared in the spring of 2006. This is shown Fig. 1(a) as the point in time when the
Case–Shiller Index peaked. Selected key events that occurred as the crisis unfolded
are shown in Fig. 1(a). (The events in this timeline are by no means exhaustive, but
rather are illustrative). Even though there was an early failure of the largest US
subprime mortgage lender at the beginning of 2007, the arrival of the crisis was not
widely recognized until October 2007. In terms of access to ¯nance, some tightening
of credit was evident as early as the second quarter of 2007 as seen in the data from
the Federal Reserve's Senior Loan O±cer Survey (see Fig. 2). And this was evident in
both small ¯rms as well as large ¯rms. Further, it was evident in early policy
initiatives including the Term Auction Facility (TAF) in December 2007.
As events unfolded in 2008 two of the ¯ve biggest \investment banks" failed
including, most notably, Lehman Brothers in September. Very soon after the failure
of Lehman the Troubled Asset Relief Program (TARP) was passed by the legisla-
ture.c Initially designed to purchase \troubled assets" (i.e. subprime MBS), it quickly
morphed into the Capital Purchase Program (CPP) when di±culties associated with
pricing subprime MBS in a ¯re sale environment appeared to be quite problematic.
The CPP ultimately injected over $200 billion into 709 depository institutions.
c TARP was created by the Emergency Economic Stabilization Act. The act was voted down on
September 29, 2008, but it passed in a second vote days later on October 3, 2008.
2040003-4
(a)
(b)
Fig. 1.
Arguably, this was the largest policy initiative invoked in the US (Berger 2018)
and certainly the most important related to mitigating the SME credit crunch.
Figure 1(b) highlights the timing of the TARP/CPP. Because of its importance it
will be a major focus later in this paper because of its potential e®ects on SME access
to ¯nance.
2040003-5
G. F. Udell
Fed Senior Loan Officer Survey

(Percent of Banks Tightening Credit Standards for
Commercial and Industrial Loans)
100.0
80.0
60.0
Percent Tightening
40.0 Large and Medium Firms
Small Firms
20.0
0.0
Apr-91
Apr-93
Apr-95
Apr-97
Apr-99
Apr-01
Apr-03
Apr-05
Apr-07
Apr-09
Apr-11
-20.0
-40.0
Fig. 2.
3.2. The European timeline

The European timeline looks quite di®erent. Part of this di®erence involves a lag in
events. While early signs of trouble appeared in 2007 in Europe (e.g. Northern Rock
in the UK and IKB in Germany), major problems became more clearly apparent
around the time that Lehman failed. For example, as shown in Fig. 3(a) the melt-
down in Iceland appeared shortly after Lehman. [Again, like Fig. 1(a), Fig. 3 is not
intended to be exhaustive in terms of displaying all of the key events. Its purpose,
instead, is to re°ect a sense of how events unfolded]. There were some obvious
similarities between the US and Europe. For example, losses from investments in US
subprime MBS were a common feature of the crisis in both places as banks in both
Europe and the US invested in these bonds. Further, bank loan losses in both areas
from real estate and other components of bank portfolios caused a very problematic
credit crunch on both sides of the Atlantic.
But, the crisis in Europe itself was also di®erent in several respects. First, there
was a home-grown real estate bubble that popped in parts of Europe that did not
involve subprime MBS. For example, a free fall in real estate prices in Ireland and
Spain led to problematic loan losses and bank failures. In Spain, the entire savings
bank sector the caja banks failed and was bailed out [see e.g. Illueca et al.
(2014, 2020)]. Second, the European situation was severely exacerbated by the
sovereign debt crisis which began to unfold in 2010 as re°ected in the country-level
boxes including that of Greece. This component of the crisis was speci¯cally related
to the Euro-area countries consisting of Greece, Ireland, Italy, Portugal and Spain.
2040003-6
(a)
(b)
Fig. 3.
And, third, the impact of the crisis in Europe had a distinctly regional aspect in some
sense pitting Northern versus Southern Europe.
In terms of policy initiatives, the OMT was arguably the most signi¯cant par-
ticularly in terms of its scale and in terms of its unconventional monetary response to
the sovereign debt-driven part of the crisis. On July 26, 2012, Mario Draghi, Presi-
dent of the ECB, vowed that he would do \whatever it takes" to address the crisis
2040003-7
G. F. Udell
and the soaring bond yields of weaker Euro-area members. The next month the OMT
program was rolled out. This timing is re°ected in Fig. 3(b).
4. Data Availability
In terms of studying large ¯rm access to ¯nance, data in the US is at least as powerful
as that in Europe. Moreover, a larger fraction of employment runs through the large
¯rm sector of the economy in the US. Publicly traded ¯rms must regularly ¯le 10K
reports with the Securities and Exchange Commission (SEC) that contain, among
other things, their audited ¯nancial statements. This information is easily available
to researchers in the Compustat dataset. Commercial loan-level information is
available in the Thomson Reuters LPC's DealScan dataset. On the banking side,
¯nancial information on all commercial banks and cooperatives is publicly available
in the US (i.e. the bank Call Reports). Data from DealScan can be used to connect
the borrowing ¯rms with their banks.
The same is not true when comparing Europe and the US with regard to ¯nancial
data and loan data on SMEs. Simply put, data on SME access to ¯nance are better in
Europe. Part of the problem stems from the fact that the private (i.e. not-traded)
¯rms in the US are not required to reveal their ¯nancial statements publically nor are
these statements available in datasets such as the Bureau-van-Dijk Amadeus dataset
or a commercial credit registry as they are in Europe. In addition, there does not exist
a dataset in the US now
or during the GFC that connects SMEs to their
banks. While there are some datasets that contain loan-level information on SME
commercial loans, these datasets do not identify the borrowers.
One way to think about the disparity in the quality of data on SME ¯nance
between Europe and the US is in the context of the identi¯cation problem associated
with analyzing a credit crunch. The key challenge here is identifying supply e®ects
versus demand e®ects. In the absence of special natural experiments [see e.g. Peek &
Rosengren (1997), Khwaja & Mian (2008), Chava & Purnanandam (2011) and Lin &
Paravisini (2013)], the two most powerful types of datasets that are available to
address the identi¯cation challenge are well-designed ¯rm-level survey instruments
and national-level credit registries.
Regarding the former, the survey instrument needs to contain information about
the ¯rm and about its access to ¯nance. Ideally, ¯rm information should include both
¯nancial information and non¯nancial information. It should contain information on
recent loan demand including whether it has recently applied for a loan, whether it
received the loan request and if the request was granted, under what terms. It should
also have information about whether a ¯rm was discouraged from making a loan
request due to the expectation of being denied. In addition, it should contain in-
formation on whether a loan, if o®ered, was less than the amount requested and/or at
a higher rate than requested. Finally, the survey should have extensive information
on ¯rm characteristics that can control for factors such ¯rm risk and ¯rm opacity. In
addition, the power of the survey will depend on its frequency and whether the
2040003-8
survey contains panel data. Even better is information that can connect the ¯rm to
its bank.
Regarding credit registries, these are credit reporting systems often run by the
country's central bank. These registries typically contain information on corporate
bank loans including the speci¯c terms of each loan. Some credit registries also
contain information on all loan requests and the outcome of those requests. The data
in credit registries are particularly helpful in identifying supply e®ects in countries
such as Italy, Spain and Portugal where SMEs typically borrow from multiple banks.
This allows for a ¯rm ¯xed e®ects methodology to control for demand e®ects. Europe
has now even pooled the national credit registries of 15 countries in the \AnaCredit"
project.d
Research on the credit crunch in the US during the GFC is challenging because
¯nancial statements are not available on SMEs and survey data is more limited than
in Europe. The Board of Governors of the Federal Reserve and Small Business
Administration introduced a powerful survey instrument the Survey of Small
Business Finance (SSBF) in 1988–1989. The SSBF was conducted four times but
discontinued in early 2007 just before the crisis hit. It would have been conducted in
2008 had the survey not been terminated by the Federal Reserve Board the year
before. (The SSBF was ultimately conducted only four times). There is one ¯rm-level
survey in the US conducted by the National Federation of Independent Business
(NFIB) that has some key features of the SSBF and has one advantage over the
SSBF in that it is conducted on a monthly basis. However, it lacks some of the key
advantages of the European survey data.
In Europe, on the other hand, some countries have conducted their own national-
level survey instruments (e.g. Ireland's Access to Finance survey). More importantly,
¯rm-level cross-country survey data on SME access to ¯nance is available for Central
and Eastern Europe [the World Bank/EBRD's \Business Environment and Enter-
prise Performance Survey" (BEEPS)] and the Eurozone (the European Central
Bank/European Commission's \Survey on the Access to Finance of Enterprises").
The SAFE dataset is particularly powerful in that it is a bi-annual survey that has
been continuously conducted since prior to the sovereign debt crisis. Moreover, re-
cent waves of the SAFE survey contain a small panel component and the ability to
connect the borrower to its bank.e; f This gives the SAFE survey a distinct advantage
over NFIB's survey.
d See Altavilla et al. (2020) for a discussion of these data in a study that examines the e®ects of supra-
national versus national prudential in the context of the interaction between credit supply and monetary
policy.
e For examples of papers that match ¯rm–bank information in Europe from Orbis/Kompass/Bureau van
Dijk, see Giannetti & Ongena (2012), Kalemli-Ozcan et al. (2018) and Ferrando et al. (2020).
f It should be noted that there is often di®erential access when these datasets are constructed by gov-
ernment agencies or central banks between researchers working for the government agency and researchers
who are not. This was true even with the US SSBF. Researchers at the Federal Reserve Board that had
access to a \private version" of the SSBF could, for example, connect the ¯rm to its bank. This di®erential
access is also true in Europe for the survey data (e.g. the SAFE data).
2040003-9
G. F. Udell
Regarding a credit registry, the US does not have one. Even if it did, the ¯rm
¯xed e®ects methodology would not be viable because US SMEs typically consolidate
their working capital ¯nancing (i.e. a ¯rm's line of credit) in a single bank (Berger &
Udell 1995).
Because of these di®erences in data on SME ¯nance, our window into the e®ect
of the GFC on SME access to ¯nance is simply wider in Europe. The research
surveyed in this paper will re°ect this reality. And the research in the US will re°ect
how researchers have attempted to overcome the data challenge described above.
5. Crisis E®ects on SME Access to Finance

This section discusses the literature on how the crisis a®ected SME access to ¯nance
during the GFC. This discussion is not intended to be exhaustive but rather to
highlight the nature of the literature, the range of data on which it is based and its
import. Given the data advantage discussed above, the discussion begins with re-
search in Europe. Then it turns to research on SME access to ¯nance in the US. At
the end this section, the extent to which the academic literature on the crisis has
examined di®erences related to di®erent types of credit (i.e. di®erent lending tech-
nologies) is discussed.
5.1. Crisis e®ects on SME access to ¯nance: Europe

One obvious distinction between Europe and the US with respect to the crisis is that
the crisis in the US was a \national" event while in Europe the crisis was a pan-
national event. This has implications for regional heterogeneity and for policy e±-
cacy. It also suggests that it makes sense to subdivide the literature in Europe into
single-country studies and cross-country studies, and treat the literature in the US as
single category.
5.1.1. European single-country studies

There have been a large number of single-country studies on the impact of the GFC
on SME access to ¯nance. For a couple of reasons, it is probably not surprising that
many of these studies have focused on southern rim countries, particularly Italy,
Portugal and Spain. First, the crisis
and particularly the sovereign debt com-
ponent of the crisis (i.e. the \sovereign debt crisis") was acute in Europe's
southern rim and the severe impact on SMEs re°ected this. Second, credit registry
data and country-level survey data allow for strong empirical identi¯cation in these
countries.
One of the earliest and most important of these studies was that of Jimenez et al.
(2012) who exploit the Bank of Spain's credit register. This study illustrates well the
strength of a ¯rm ¯xed e®ects strategy in a country where SMEs routinely borrow
from multiple banks. The idea here is to test whether shocks to bank balance sheets
a®ect the supply of credit. By using ¯rm ¯xed e®ects the authors can control for the
2040003-10
demand e®ects that usually accompany the shock itself to examine di®erences in how
a ¯rm's banks (or potential banks) adjust their supply of credit based on the
magnitude of the shock on each respective bank. That is, they tested whether banks
that were more a®ected by the shock contracted their supply of credit more than
banks who were less a®ected for the same borrower. The data in Spain's credit
register is such that the authors \can match the set of corresponding loan appli-
cations with the loan that is actually granted by the bank". This allows the authors
to focus on the \set of loan applications made in the same month by the same
borrower for the same loan to di®erent banks of varying balance-sheet strengths".
In the data that spanned the beginning of the crisis in Europe (observations from
2002 to year-end 2008), Jimenez et al. (2012) found economically and statistically
signi¯cant evidence that the bank channel loan supply e®ects were operative in
Spain that is, under poorer economic conditions lower bank capital leads to a
credit crunch. Interestingly, the tests in this paper only cover the ¯rst phase of the
GFC in Europe the period before the more severe \sovereign debt crisis". In
terms of the Spanish-speci¯c aspects of the crisis, the sample period here (ending at
year-end 2008) only includes the very early stages of the implosion of the large
savings bank (i.e. cajas bank) portion of the banking system [see e.g. Illueca et al.
(2014)].
Using a very di®erent identi¯cation strategy, another paper found signi¯cant
evidence of the credit crunch in Spain (Carbo-Valverde et al. 2016). This paper
exploited the ¯nancial statement data on over 40,000 SMEs in deploying a dis-
equilibrium model to identify credit-constrained ¯rms. Their ¯ndings show that
credit-constrained ¯rms grew from 33% before the crisis (2006) to 42%, 51% and 61%
in 2008, 2009 and 2010, respectively.
Similarly, country-level studies in Italy and Portugal showed evidence of a strong
supply e®ect. Studies in Italy include both the use of a credit registry and country-
level survey data. For example, Presbitero et al. (2014) use Italian survey data on
mostly SMEs and ¯nd evidence of a credit crunch during the 2008–2009 period. They
also ¯nd evidence that conditions in the banking sector changed considerably around
the time of the collapse of Lehman Brothers. Like Jimenez et al. (2012), Albertazzi &
Marchetti (2010) used credit registry data (the Bank of Italy's credit registry) in
conducting a ¯rm ¯xed e®ects analysis in an environment like Spain where SMEs
routinely borrow from multiple banks. They also found evidence of a bank capital-
related contraction in credit supply in the aftermath of the failure of Lehman
Brothers. Also like Jimenez et al. (2012), their analysis is in the pre-sovereign debt
crisis period.
In the context of Portugal, another southern rim country where multiple banking
is the norm, Iyer et al. (2014) analyze the e®ects of the early phase of the European
crisis
2007–2009. Also, like Jimenez et al. (2012), this paper exploits the power of
the Portuguese credit registry managed by the Bank of Portugal. The focus of this
paper is on the interbank liquidity crunch in Portugal and how this liquidity crunch
led to a credit crunch associated with the early phase of GFC crisis in Portugal. This
2040003-11
G. F. Udell
paper found that a bank's reliance on the European interbank market was associated
with a larger contraction in the supply of credit.
In the northern country most a®ected by the crisis, Lawless & McCann (2011)
exploited a ¯rm-level survey, the Access to Finance survey, conducted in 2010 by the
Central Statistics O±ce in Ireland. This paper found that during the 2009–2010
period while there was only a moderate decline in demand (i.e. credit applications),
there was a very large increase in credit rejection rates.
5.1.2. European cross-country studies

Cross-country ¯rm-level survey data in Europe allowed researchers to examine dif-
ferential e®ects of the GFC across countries. Three cross-country datasets in par-
ticular were important in this regard: the Business Environment and Enterprise
Performance Survey conducted jointly by the World Bank and the European Bank
for Reconstruction and Development; the Banking Environment and Performance
Survey (BEPS) conducted by the European Bank for Reconstruction and Develop-
ment; and the Survey on the Access to Finance of Enterprises conducted jointly by
the ECB and European Commission. The BEEPS and the SAFE surveys are ¯rm-
level surveys that share much in common with the SSBF that was conducted four
times in the US before the crisis (see above discussion). The BEPS survey is a survey
of banks. Both the BEEPS and the BEPS surveys cover countries in Central and
Eastern Europe while the SAFE survey covers countries in the Eurozone. Three
academic papers illustrate the power these data.
Popov & Udell (2012) utilize the BEEPS data to address two questions: Was
there a credit crunch in Central and Eastern Europe in the early phase of the crisis? If
yes, were foreign banks a channel through which the crisis was propagated? The
BEEPS data
like a number of other datasets allowed the authors to distin-
guish between demand and supply e®ects through a series of questions in the ¯rm-
level survey about loan requests. These questions indicate whether the ¯rm had a
demand for loans (or lines of credit) and what the outcome of the request was.
Importantly, the questionnaire also asked whether the ¯rm was \discouraged" from
applying because of an expectation of rejection.g It also asked whether the o®ered
interest rate and/or the collateral requirements were too high. If any one of these
three conditions applied, or the loan was simply rejected, the ¯rm was classi¯ed as
constrained
the key dependent variable. While the data in BEEPS survey do not
directly connect the borrower to the lender, the respondent ¯rm's location is known.
Using that information, the authors construct a locality-speci¯c measure of ¯nancial
bank distress by weighting balance sheet data in the local market. The BEEPS
survey also allows for a number of ¯rm-level controls. The paper found evidence that
the answer to both of the above questions is yes using the wave of the BEEPS data
that was conducted in early 2008 and comparing it to the 2005 wave.
g Accountingfor discouraged ¯rms had been shown to be quite important in identifying credit-constrained
borrowers (Brown et al. 2011).
2040003-12
Beck et al. (2018) also used the BEEPS data and found evidence of a substantial
tightening of credit using the survey wave that was conducted in 2008–2009
about a year later than the wave used in Popov & Udell (2012) compared to the
2005 wave. In addition, however, Beck et al. (2018) also exploited the second wave of
the BEPS survey (BEPS II) to examine whether 397 Central and Eastern European
banks who were relationship lenders behaved di®erently than those who were
transactions lenders. They classi¯ed these banks based on a question in the BEPS II
survey that asked CEOs to rate their banks on the importance of di®erent under-
writing tools speci¯cally, relationship lending, fundamental and cash °ow anal-
ysis, business collateral and personal collateral. They found that ¯rms in markets
with more access to relationship banks (as measured by the share of relationship in
their local market) were less likely to be credit-constrained during the crisis (i.e.
2008–2009) but were not more credit-constrained before the crisis (i.e. in 2005). Like
Popov & Udell (2012), Beck et al. (2018) did not cover the period of the sovereign
debt crisis which unfolded in 2010.
Unlike the two papers above, Ferrando et al. (2017) examine the sovereign debt
period of the crisis (i.e. the \sovereign debt crisis") using cross-country survey data.
For this analysis the authors exploited the ¯rst six waves of the SAFE survey data.
The ¯rst two waves were conducted prior to the onset of the sovereign debt crisis.
The third wave was conducted between April 1 and September 30 of 2010 during the
period with sovereign crisis unfolded. That last three waves were conducted after the
onset of sovereign crisis
the period from October 1, 2010 until March 31, 2012.
Like the BEEPS survey, the SAFE survey asks its ¯rm respondents a similar set of
questions about their demand for credit and the outcomes (including the discouraged
borrower question). The data consisted of 38,747 observations on 24,453 ¯rms with
information on a number of di®erent ¯rm characteristics and their use of various
forms of ¯nancing. The paper focused on ¯rms in the ¯ve sovereign debt-stressed
countries (Greece, Ireland, Italy, Portugal and Spain) and in the six nonstressed
countries (Austria, Belgium, Germany, Finland, France and the Netherlands). Using
a di®erence-in-di®erences (DID) approach the paper ¯nds that controlling for bor-
rower quality the ¯rms in stressed countries were signi¯cantly more likely to be
credit-constrained. While this paper tests whether the supply e®ect runs through the
channel driven by bank holdings of sovereign debt, the test is indirect because the
data from these waves of the SAFE survey cannot be used to match the respondent
¯rm with its bank(s). The assumption here, therefore, is that most banks own a
signi¯cant amount of domestic sovereign debt on their balance sheets; thus, the
banks in a sovereign-stressed country will typically have signi¯cantly stressed sov-
ereign debt exposure. These ¯ndings, however, are con¯rmed in a follow-up paper
(discussed below) by the same authors that utilizes later waves of the SAFE survey
that connects ¯rms to their banks.
2040003-13
G. F. Udell
5.2. US studies
With regard to large ¯rms as noted above
the data in the US provide a rich
environment to examine the impact of the GFC on access to credit. Not surprisingly,
a number of studies in the US exploited these data [see e.g. Ivashina & Scharfstein
(2010), Almeida et al. (2011) and Norden et al. (2013)]. However, as also noted
above, the lack of a national credit registry and the lack of ¯rm-level ¯nancial
statements for SMEs make analyses of GFC's e®ects on SME access to ¯nance in the
US much more challenging than in Europe.

Studies of changes in large ¯rm access to ¯nance in the US during the GFC
indicate signi¯cant e®ects. These ¯ndings for large US ¯rms suggest that the e®ects
on SMEs would likely be even greater given that SMEs are more opaque and they do
not have access to the capital markets like large banks, e.g. the commercial paper
market and the corporate bond market. Some empirical evidence using loan-level
data, indeed, suggests a larger credit rationing e®ect for smaller ¯rms (Montoriol-
Garriga & Wang 2012). Moreover, non¯rm data such as the Senior Loan O±cer
Survey data shown in Fig. 2 suggest a large impact on US SMEs. Discussed below are
a number of papers that provide additional examples of how researchers have
attempted to overcome the data limitations in the US.
Berger et al. (2015, 2017) exploit the only ¯rm-level small-business survey
datasets available in the US to study SME access to ¯nance and how it was a®ected
during the GFC. The work of Berger et al. (2015) uses longitudinal data from the
Kau®man Firm Survey (KFS) conducted by the Ewing Marion Kaufman Founda-
tion on small start-up ¯rms. These data follow a group of start-up ¯rms beginning in
2004 and contain information about their ¯nancing and the characteristics of the
¯rm and the ¯rm's owner.h The ¯rm's ¯nancing data include information on credit
extended to the owner and credit extended directly to the ¯rm. The work of Berger
et al. (2017) uses the Small Business Economic Trends (SBET) survey compiled by
the largest small-business trade association in the US, the National Federation
of Independent Business. Like the SAFE survey, the SBET survey is conducted
regularly
in this case monthly. (By way of comparison, the SAFE survey has been
conducted bi-annually since the beginning of 2009.) Neither the KFS survey nor the
SBET survey connects the ¯rm to its bank.i
Regarding Berger et al.'s (2015) paper, the authors examine how the size struc-
ture of the local market a®ects ¯rms' access to ¯nance and ¯rm outcomes. The paper
¯nds in the pre-crisis period that start-ups bene¯t from more lending and less failure
when there is a greater presence of small banks in the market. However, these ben-
e¯ts disappear during the crisis period (2007–2009).
h The KFS data are con¯ned to start-ups that can best be characterized as micro-¯rms. About 83% on a
weighted basis of the start-ups in the KFS data have revenue under $100,001 and 87% have less than four
employees [see Robb & Robinson (2014)]. For comparison, Ferrando et al. (2017) report that 66% of the
¯rms used in their SAFE data had 10 or more employees.
i The SSBF data (which was not conducted during the crisis as noted in footnote f) allowed researchers
with access to the \private" dataset to connect a respondent ¯rm to its bank (see footnote h above).
2040003-14
Regarding Berger et al.'s (2017) paper, it exploits the key question in the SBET
survey for identifying credit-constrained ¯rms: \During the last three months, was
your ¯rm able to satisfy its borrowing needs?" This question was asked only of ¯rms
that indicated demand for borrowing. While the survey instrument does not connect
the ¯rm to its lender, the SBET survey (like the KFS survey) does contain infor-
mation about the ¯rm's location. The authors utilize this information to construct a
local bank size structure variable the share of small banks in the local market.
Also, the SBET survey contains information on a number of key ¯rm characteristics
such as sales, change in sales, number of employees and corporate form used in the
paper as control variables.
The primary focus of this paper was on the advantages of small banks in allevi-
ating ¯nancial constraints using monthly SBET survey data from 1993 to 2012. The
analysis also includes tests that directly relate to the ¯nancial crisis. The paper ¯nds
that the small bank advantage in alleviating credit constraints becomes stronger
when national unemployment is higher. The paper also ¯nds that during the period
of the crisis when disruptions in the asset-backed commercial paper most a®ected
large banks, the advantage of small banks in alleviating ¯nancial constraints was the
strongest.
The SBET data have many of the advantages found in the two biggest cross-
country ¯rm-level surveys in Europe discussed above: the BEEPS and SAFE sur-
veys. The SBET survey has a strong proxy for ¯rms' credit constraints that can
identify supply e®ects and it contains ¯rm-level controls that are relatively compa-
rable to the European surveys. However, both European surveys can directly dis-
entangle the components of credit constraints, i.e. the denial, the discouraged
borrower e®ect, the credit rationing e®ect (a loan o®er less than the request) and a
pricing e®ect, while the SBET survey cannot. Ferrando et al. (2017), for example,
speci¯cally examine each of these components. Also, the SBET survey does not have
panel data nor does it have information that connects the bank and the ¯rm. Later
versions of the SAFE survey have both of these. For example, Ferrando et al. (2017,
2019, 2020) exploit these panel data in the SAFE survey; Ferrando et al. (2019, 2020)
exploit the ¯rm–bank connections in SAFE survey and also exploit the ability to
utilize ¯rm-level SME ¯nancial statements from Bureau van Dijk's Amadeus to
examine real e®ects. Despite these limitations, the SBET survey o®ers the best
opportunity to distinguish at the ¯rm level the supply e®ects from the demand
e®ects. This identi¯cation is more di±cult in studies that rely on bank portfolio and
loan-level data. Next, some examples of US studies that use these types of data are
examined.
One of the best examples of studies that use bank portfolio data to analyze the
credit crunch in the US is DeYoung et al. (2015). This paper deployed a structural
model of bank portfolio lending to analyze the behavior of community banks in the
US during the crisis. The paper found a reduction in business lending by the typical
community bank in the US. The paper also found that that this decline was caused
by increased risk overhang e®ects (i.e. less balance sheet liquidity) and a decline in
2040003-15
G. F. Udell
supply elasticities consistent with credit rationing. Interestingly, they also found that
a subset of banks identi¯ed as strategically focused on relationship lending main-
tained higher levels of SME lending.
Another strategy in the US to study the e®ect of the GFC on SMEs is to utilize
the Call Report bank data on small-business lending. Starting in 1992, the bank Call
Reports include a section on small-business loans less than $1 million. While these
data contain information about some of the key loan terms, they do not contain
borrower information. Cole (2012), for example, used these data in an early analysis
of the crisis to examine how bank credit was a®ected and to examine di®erences
between large and small banks. This paper found in univariate and regression
analyses that bank credit to all business declined precipitously and especially
lending to small businesses. The paper also found a positive relation between bank
capital and business lending and, particularly, small-business lending. Perhaps most
interesting, the paper found strong evidence that bank size and business lending were
negatively related. In a follow-up paper, Cole (2017) found that lending to small
businesses continued to be low while lending to large businesses tended to recover.
This second paper also found that declines in small-business lending were larger at
large banks and larger at banks in poorer ¯nancial condition. This paper used both
stock data on business lending from the Call Report and °ow data from the Com-
munity Reinvestment Act (CRA) data on small-business loans. These CRA loan
origination data on small-business lending by large banks were also used by Berger
et al. (2017) to determine how exposure to asset-backed commercial paper a®ected
small-business credit rationing.
5.3. The crisis, the credit crunch and relationship lending

A number of studies covered above re°ect the general ¯nding in the literature that
the impact of the GFC on SME access to ¯nance was both economically and sta-
tistically signi¯cant. This literature also contains a considerable amount of evidence
on how the GFC di®erentially a®ected SME access to ¯nance based on the ¯rm
characteristics and based on the nature of the ¯rm–bank relationship. These ¯ndings
are too extensive to cover in this paper. So, in the interest of space, and in the interest
of illustrating the importance of these ¯ndings, the remainder of the section focuses
on just one perhaps the most interesting and the most studied: the importance of
relationship lending. Speci¯cally, the focus here is on relationship lending as a
lending technology [see e.g. Petersen & Rajan (1994), Berger & Udell (1995), Boot
(2000) and Kysucky & Norden (2016)] and ¯ndings in this literature on whether
¯rms that had a stronger banking relationship were more insulated from a con-
traction in their access to credit.j
j Other interesting topics include: risk-taking and the \°ight to quality e®ect" (Presbitero et al. 2014,
Bolton et al. 2016, Bon¯m & Soares 2018); the home bias e®ect (Giannetti & Laeven 2011, De Haas & van
Horen 2013, Presbitero et al. 2014, Sette & Gobbi 2015); zombie lending/evergreening (Albertazzi &
Marchetti 2010, Bersch et al. 2020, Bon¯m & Soares 2018); the role of trade credit as a safety valve
(Garcia-Appendini & Montoriol-Garriga 2013, Carbo-Valverde et al. 2016).
2040003-16
A number of papers discussed above, indeed, examined precisely this issue. Some
of these papers exploited ¯ndings elsewhere in the literature that some banks have an
advantage in relationship lending to SMEs to test di®erential e®ects for relationship
borrowers. As discussed above, Beck et al. (2018) utilized the BEPS II data to
identify relationship banks and found a positive e®ect on credit access. Berger et al.
(2017) found a similarly positive e®ect with respect to small banks having an ad-
vantage over large banks which would be consistent with (but not providing direct
evidence of) an advantage in relationship lending.k And, as discussed above,

DeYoung et al. (2015) and Cole (2012) also examined relationship lending through
the lens of small banks with results that are consistent with relationship lending
providing a bu®er during the credit crunch. All of these studies could be considered
to have provided indirect evidence of this e®ect because they did not examine the
e®ect using ¯rm-level data on the strength of the relationship.
A number of studies have directly examined the potential of relationship strength
to mitigate supply e®ects using direct measures of the relationship strength. Jimenez
et al. (2012), discussed above, was one of the ¯rst to do this in the context of the
GFC. This paper exploited the data in the Spanish credit registry to test for this
e®ect using the number of banking relationships as a proxy for relationship strength
(a proxy commonly used in studies of relationship lending in countries where banking
from multiple banks is the norm). The paper ¯nds strong evidence that the bank
lending channel is less potent for relationship borrowers
a ¯nding consistent with
relationship lending providing a bu®er against the credit crunch. Sette & Gobbi
(2015) ¯nd the same positive result using the Italian Credit Registry. However, in
Italy a multi-bank environment like Spain
they identify a single \relationship
lender" (among multiple lenders) based on three factors associated with relationship
strength: share of loans, duration of the relationship and distance from the lender.
Along these same lines, Degryse et al. (2019) in a study of Belgium ¯rms ¯nd that
single-bank ¯rms are quite di®erent from multi-bank ¯rms and that ignoring these
single-bank ¯rms could be problematic in identifying credit supply shocks. This
analysis raises the interesting issue of whether ignoring single-bank borrowers in a
\multi-bank" country matters. In Degryse et al. (2019), the sample data re°ect an
82% single-bank versus 18% multi-bank mix. Data in Fig. 1 in Altavilla et al. (2020)
show 56% versus 44%, 63% versus 37% and 54% versus 46% mixes (as a percent of
borrowers) for Portugal, Spain and Italy, respectively.
Bolton et al. (2016) also exploit credit registry data from Italy to examine the
impact of relationship strength. This paper, like Beck et al. (2018), distinguishes
between relationship banks and transactions banks but, using a di®erent
k This literature supports the view that the comparative of small banks comes from their ability to produce
and communicate soft information about borrower quality [see e.g. Stein (2002), Berger & Udell (2006)
and Kysucky & Norden (2016)]. Two papers using US data ¯nd that small banks have an absolute
advantage in alleviating small-business ¯nancial constraints (Berger et al. 2005, 2017). It should be noted
that some empirical evidence suggests that large banks may also have the potential to underwrite rela-
tionship loans [see e.g. Uchida et al. (2012)].
2040003-17
G. F. Udell
approach to make this distinction. Speci¯cally, the paper divides relationship banks
and transactions banks based on the distance between a bank's headquarters and the
¯rm's headquarters.l E®ectively, this distance is used to measure the strength of the
borrower–bank relationship given that banks have greater di±culty in transmitting
soft information over greater internal distance.m It then calculates the share of a
¯rm's banks that are relationship banks. Key ¯ndings in this paper are that after the
Lehman failure the more dependent a ¯rm is on transactions banks, the more likely it
is to ultimately default. The paper also ¯nds (consistent with a theoretical model
presented in the paper) that while transactions banks provide loans at a cheaper rate
in good times, they provide loans at a higher rate in bad times
and transactions
banks provide a lower supply of loans particularly in bad times.
6. The E±cacy of Key Policy Interventions on SME Access to Finance

A large number of policies were implemented at the country level and the Eurozone
level to mitigate the damage in Europe and the US. Some of these are shown in the
timelines for the US and Europe in Figs. 1(a) and 3(a). Much research has been
conducted on these various initiatives including research on the e±cacy of policies in
mitigating the damage to SMEs from the credit crunches that occurred on both sides
of the Atlantic. An exhaustive review of this research is beyond the scope of this
paper. Instead, the paper focuses on arguably the most important policy initiative in
the US and the most important policy initiative in Europe: respectively, the TARP/
CPP and the OMT. Both of these were discussed in Secs. 3.1 and 3.2 and the timing
of each shown in Figs. 1(b) and 3(b). This section discusses the evidence on the
e±cacy of each of these policy initiatives with respect to mitigating credit crunch-
associated constraints on SME access to ¯nance. The paper addresses the TARP/
CPP initiative ¯rst because it occurred ¯rst chronologically.
6.1. The e®ect of TARP/CPP on SME access to ¯nance

As noted above, one of the challenges faced by researchers in studying SME ¯nance
and the GFC in the US is the relative lack of ¯rm-level data that connects ¯rms to
their banks such as that contained in the credit registries and many of the survey
datasets in Europe. Despite this limitation, the evidence in the US indicates that the
TARP/CPP program provided some bene¯t to SMEs from the credit crunch. Li
(2013) used bank portfolio-level data from US bank Call Reports to examine the
TARP/CPP's e®ect on bank loan supply. Using a novel identi¯cation strategy that
exploits political and regulatory connections to identify supply e®ects in a two-step
model, the paper ¯nds that TARP/CPP injections signi¯cantly increased loan
supply for less well-capitalized banks. The tests were run on all loans and on separate
l This distance is referred to \functional distance" in Alessandrini et al. (2009) and Presbitero et al. (2014).
m See Filomeni et al. (2020) for direct evidence of this in the context of data on corporate lending by a large
Italian bank.
2040003-18
categories of loans including commercial and industrial (C&I) loans. In robustness

checks, the same tests were run on small banks
banks with less than $1 billion in
assets. Banks of this size virtually exclusively lend to SMEs. Thus, these tests tell us
about SME access to ¯nance. The e®ects for the subsample of small banks were even
stronger including for C&I loans which would be extended exclusively to SMEs.
Black & Hazelwood (2013) using loan-level data from the Federal Reserve's Survey
of Terms of Business Lending found that the level of C&I loans actually declined at
TARP banks relative to non-TARP banks. For smaller banks (that necessarily focus
on SME lending), however, the level of C&I was a bit higher for TARP banks after the
injection. This is consistent with the hypothesis that their supply of lending may have
been higher than otherwise had they not received TARP funding.n
In the absence of ¯rm-level data connecting SMEs to their banks, Berger &
Roman (2017) take another approach by analyzing the connection between banks
and real e®ects in local markets. Some of these e®ects will run through large ¯rms but
they will also run through SMEs. As dependent variables, the authors analyze net job
creation, net hiring, business bankruptcies and personal bankruptcies. The key in-
dependent variable is the proportion of banks receiving TARP/CPP injections in the
state. Using a DID approach, they ¯nd a statistically and economically positive e®ect
from the TARP/CPP for each of the three alternative dependent variables. Inter-
estingly, they also ¯nd that these results are only statistically signi¯cant for medium
and large TARP/CPP banks, particularly medium-sized banks. A counterfactual
¯nding that this e®ect for small banks was statistically and economically signi¯cant
would strongly suggest that SMEs were bene¯ciaries of the TARP/CPP policy ini-
tiative. However, the size range of the \medium"-sized banks is relatively small

between $1 billion and $3 billion in assets. These banks would still be generally
considered to be community banks with a local orientation and a business loan
portfolio that consists primarily of SMEs, thus suggesting that SMEs did bene¯t
from this program. This is also consistent with ¯ndings on the e®ects of TARP/CPP
by Puddu & Waelchli (2015) using data on small-business loans from the CRA data.
These data mostly come from banks over $1 billion in assets, however.o
Another paper analyzed \indirect" e®ects from the TARP/CPP (Norden
et al. 2020). Speci¯cally, this paper analyzed whether ¯rms whose bank was a
TARP/CPP recipient extended more trade credit. Trade credit is generally recog-
nized as being the second most important source of external ¯nance for SMEs [see
e.g. Berger & Udell (1998)]. The paper utilizes ¯nancial data on mostly large ¯rms
from Compustat and loan data from LPC's DealScan to measure the extension of
trade credit and distinguish between ¯rm dependence on TARP/CPP banks and
non-TARP/CPP banks. Using a di®erence-in-di®erences methodology, the authors
¯nd strong evidence that ¯rms that borrow from TARP/CPP banks signi¯cantly
n The primary focus of this paper was on bank risk-taking in response to TARP/CPP injections ¯nding
that large- and medium-sized TARP-recipient banks made riskier loans after their CPP capital injection.
o For a more complete review of the literature on TARP/CPP's e®ect on credit supply, see Berger (2018)
and Berger and Roman (2020).
2040003-19
G. F. Udell
increased their provision of trade credit. These data, however, do not allow the
authors to see who received this trade credit. But, it is reasonable to assume that
some and possibly a substantial amount
of this increased trade credit went to
SMEs. However, it is not possible to measure this.
6.2. The e®ect of the OMT on SME access to ¯nance

Turning to arguably the biggest policy initiative in Europe, the OMT, it will become
apparent that European data have an advantage in terms of clearly identifying

supply e®ects, the bene¯t of having ¯rm-level data including panel data and the
ability to make the ¯rm–bank connection. These advantages exist in studying large
¯rm e®ects in the US as illustrated in Duchin & Sosyura (2014) and Norden et al.
(2020)
but not in studying US SMEs. This advantage is illustrated in two papers
that exploit the SAFE data to analyze the OMT's impact in terms of mitigating SME
¯nancial constraints after the unfolding of the sovereign debt crisis.
The ¯rst of these two papers, Ferrando et al. (2019), investigated OMT's impact
and the extent to which this was related to the exposure of a ¯rm's bank to sovereign
debt. The authors exploited the fact that later waves of the SAFE survey contained
the ¯rm's identity which, in turn, enabled them to connect the ¯rm to its bank via
the Bureau van Dijk's Amadeus dataset. Two measures of bank sovereign debt
exposure were tested. From Bankscope, the overall sovereign debt exposure was
available for 126 banks. From the European Bank Authority's (EBA) stress test,
stressed sovereign debt exposure was available for 25 banks. For both the Bankscope-
based (DIDID) model and the EBA-based (DID) model, the paper found that the
OMT announcement was associated with an improvement in credit access for ¯rms
whose banks had more sovereign debt exposure. This result was also unchanged in
tests on the subset of ¯rms for which the SAFE survey contains panel data. The
paper also found that most of the OMT's e®ect is from a decline in loan denials and a
decline in price rationing. In addition, it also found evidence that the OMT had real
e®ects in terms of a positive e®ect on ¯rm capital investment and on ¯rm cash °ows.
In the second paper, Ferrando et al. (2020) build on the ¯ndings of the above
paper that the OMT had an immediate e®ect by exploring the extent to which
unconventional monetary policy might have an expectations e®ect
speci¯cally
whether unconventional monetary policy including the OMT a®ected SME expec-
tations about future credit availability. In addition to analyzing the impact of OMT,
the paper also examined two other unconventional monetary policies: the ECB's
policy decision to move rates into negative territory (June 2014) and the ECB's
Corporate Sector Purchase Programme (March 2016). To test for the expectations
e®ect, the paper exploited a question in the SAFE survey that asks ¯rms about
whether credit access will improve in the future.p This paper ¯nds that unconven-
tional monetary policy, including the OMT, a®ects expectations about future credit
available. And it ¯nds that expectations about future credit availability, in turn,
pA similar question is asked in the NFIB survey used in Berger et al. (2017) discussed above.
2040003-20
a®ects ¯rm investment growth and employment even after controlling for current
¯nancing conditions (i.e. the immediate e®ect).
7. Conclusion
This paper has attempted to assess the status of research on how the GFC a®ected
SME access to ¯nance. Our exploration was not intended to provide an exhaustive
literature review, but rather to highlight papers that illustrate how research analyzed
the damage done by the crunch associated with the GFC on both sides of the
Atlantic and how researchers empirically assessed the success of key policy initiatives
to mitigate that damage. In doing so, this paper highlights key challenges in ana-
lyzing SME access to ¯nance and how di®erences in data availability have driven
di®erent approaches in Europe and the US.
Given the events associated with the unfolding COVID-19 pandemic, it seems
appropriate to o®er some speculation on how the research on the GFC might
inform new research about SME access to ¯nance today. As of this writing, it is
still quite unclear how much damage will be in°icted upon commercial banks
across developed and developing economies. But, given the staggering impact
on employment in Europe and the US, it seems likely that loan losses will accu-
mulate rapidly in the banking sector. Regulatory °exibility may help mitigate
loan supply e®ects to the extent that prudential supervisors relax capital
requirements and loan loss provisioning (e.g. the ECB's March 20, 2020 relaxation
of nonperforming loan regulation). Policy initiatives such as the Single Supervi-
sory Mechanism in Europe and the Dodd-Frank Act in the US have likely made
the banking systems more resilient than they otherwise would have been and have
put banks in better shape than they were in prior to the GFC. Nevertheless, a
dual crisis seems likely to materialize a pandemic medical crisis in parallel with
a banking crisis.
Some comments/speculation may be in order. First, in studying the impact of the
upcoming crisis in Europe on SME access to ¯nance, research on Europe will still
have a considerable advantage over research in the US in terms of data. New data
sources in the US and/or more creative use of existing data may help narrow the gap
in window to identify supply e®ects and assessing the magnitude of these e®ects.
Second, the incredibly rapid evolution of events on both the medical side and the
economic side may make it more di±cult to identify the individual e®ects of policy
initiatives. As can be seen in the timelines discussed in Sec. 3, temporal spacing of
policy issues allowed researchers to distinguish between various stages of the crisis
and to link outcomes with speci¯c policies. As seen above, Ferrando et al. (2020) were
able to analyze three di®erent unconventional monetary policy initiatives that oc-
curred at very di®erent times 2012, 2014 and 2016. Today, events are happening
nearly simultaneously. Moreover, e®ects due to the (i) disease, (ii) lockdown, (iii)
mitigation policies (e.g., social distancing), (iv) unemployment and (v) bankruptcies
cannot be easily identi¯ed or disentangled. On the other hand, heterogeneity across
2040003-21
G. F. Udell
countries in Europe and across states in the US in terms of both the pandemic crisis
and the economic crisis made provide researchers with helpful variation.
Third, causality in this crisis appears quite di®erent from the GFC. Causality in
the GFC appeared to run through a popping real estate bubble to a banking crisis to
a recession. The unfolding of the crisis this time appears quite di®erent. It appears to
be a pandemic causing a recession that (likely) causes a banking crisis. This di®erence
in the causal chain of events associated with the COVID-19 may have its own set of
implications. For example, the rapid evolution of the pandemic created a precipitous
collapse in demand that has already caused an acute ¯rm solvency problem unlike
the early stages of the GFC.q
Fourth, some of the ¯ndings in the GFC literature may inform our research going
forward. These could include ¯ndings on di®erences between small banks and large
banks and the importance of ¯rm–bank relationships. Regarding the latter for ex-
ample, early anecdotal evidence suggests that some large banks were only providing
funding under the US Small Business Administration's $349 billion Paycheck Pro-
tection Plan to SMEs with which it had an existing relationship.r While it is too early
to reach any strong conclusions about this, it does seem to be consistent with ¯ndings
above regarding bank behavior and relationships during the GFC.
Of course, at this point it is too early to fully appreciate all of the similarities and
di®erences between the GFC and the currently unfolding crisis.s However, regarding
the impact on SME access to ¯nance and the policy initiatives that may be con-
sidered, the literature on the GFC should be informative.
Acknowledgments
This paper was written as an outgrowth of the Journal of Financial Management,
Markets and Institutions (JFMMI) Conference 2019 on \Research Development in
Banking and Finance Ten Years after the Financial Crisis" held in Turin, Italy, on
September 12, 2019. Speci¯cally, the paper builds on a keynote address by the author
at this Conference. The author thanks the Organizers of this Conference and the
Editors of this Special Issue of JFMMI
Francesca Arnaboldi, Vincenzo Capizzi
and Santiago Carbo-Valverde
for inviting this paper and for their helpful com-
ments. The author also thanks participants of the Conference, two anonymous
q For more info, see e.g. J. Stein, \Evaluating Fed-Treasury Credit Programs," COVID 19 Webinar Series,
May 11, 2020.
r See A. Gregg and R. Merie, \Big banks too `free money' in 2008. They're turning their backs now on small
businesses, SBA o±cial says." The Washington Post, April 8, 2020, Available at https://www.washing-
tonpost.com/business/2020/04/08/video-sba-o±cial-blasts-big-banks-over-failure-quickly-distribute-
loans/ (accessed on April 8, 2020).
s The lending infrastructure has also changed. Most notably, the arrival of FinTech o®ers SMEs (partic-
ularly small enterprises) new sources of external ¯nance through online platforms on both the debt and
equity dimensions. The possible disintermediation e®ects [see e.g. Bertsch & Rosenvinge (2019) and de
Roure et al. (2019)] associated with this innovation will be an interesting to analyze in the context of the
COVID-19 crisis.
2040003-22
referees, Allen Berger, Christa Bouwman, Raluca Roman and Lars Norden for their
very helpful comments.
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Journal of Financial Management, Markets and Institutions

Vol. 8, No. 1 (2020) 2040003 (25 pages)

SME ACCESS TO FINANCE AND THE GLOBAL

1305 E. Tenth Street, Bloomington, IN 47405, USA

Received 21 May 2020

2. The Importance of SMEs and the Nature of SME Finance

3. The Crisis Evolution

3.1. The US timeline

Fed Senior Loan Officer Survey

40.0 Large and Medium Firms

3.2. The European timeline

5. Crisis E®ects on SME Access to Finance

5.1. Crisis e®ects on SME access to ¯nance: Europe

5.1.1. European single-country studies

5.1.2. European cross-country studies

US much more challenging than in Europe.

5.3. The crisis, the credit crunch and relationship lending

evidence of) an advantage in relationship lending.k And, as discussed above,

6. The E±cacy of Key Policy Interventions on SME Access to Finance

6.1. The e®ect of TARP/CPP on SME access to ¯nance

categories of loans including commercial and industrial (C&I) loans. In robustness

6.2. The e®ect of the OMT on SME access to ¯nance

apparent that European data have an advantage in terms of clearly identifying

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