Bank Pulse: Eurozone funding diversification progresses slowly

After the 2008 financial crisis and its aftermath in Europe, policymakers concluded (among other things) that European businesses should diversify their funding, reducing their reliance on bank finance. The Capital Markets Union (CMU) was conceived to support this process, aiming to integrate Europe’s fragmented financial markets.

The CMU has proven to be a tough goal to realise, though the European Commission remains committed. But how is Europe in the meantime doing on bank dependence? For households, we can be brief. When the euro was created in 1999, 88.1% of household borrowing came from banks. After some minor fluctuations over the past two decades, that figure stands at 86.5% today.

It is more interesting to look at non-financial business funding. Taking together loans and bonds (but excluding trade and intercompany credit), 63% of business funding was supplied by banks in 1999. Typically the market share of domestic banks was higher in large countries than in smaller ones. In 1999, domestic banks provided over 75% of financing in Germany, Italy and Spain. For Belgium, the domestic share was 52%, and for Finland and the Netherlands even below 40%.

These figures have converged somewhat since 1999. The Eurozone-wide bank share in non-financial business funding peaked at 64% at year-end 2008, and started a gradual decline that lasted six years. By 2015, the share of banks stabilised around 48%.

As the pandemic engulfed Europe in 2020, the crisis response in several countries relied heavily on bank lending. Indeed the Eurozone-wide bank share increased again to 50%, driven mainly by strong bank lending growth in France, Spain and Italy.