Fresh off the press, as CEPR Discussion Paper and with a Vox
column, Miguel Ampudia, Alex Popov and I are gauging the impact of introduction of centralised bank supervision in the euro area on corporate investment. Following an asset quality review and stress tests (together referred to as Comprehensive Assessment),
a number of significant euro area banks became supervised by the SSM in late 2014, while others remained under the supervision of their national authorities. While previous research has shown that the shift to centralized supervision resulted in stability-enhancing
actions by the affected banks our research shows the impact of this change in supervisory architecture on the real economy.
Our results show that firms borrowing
from SSM-supervised banks experienced a significant reallocation across different types of investment, relative to firms borrowing from banks that remained under the supervision of national authorities, namely from intangible to tangible assets and cash. These
results are robust across a number of sensitivity analyses, including a parallel test analysis and a placebo test where we apply our empirical setting and estimation to European countries whose banks did not fall under the SSM from 2014 onward – there
is no significant difference between firms borrowing from SSM-eligible banks and other banks. The decline in intangible investment is particularly pronounced in innovation- intensive sectors. Finally, we find a reduction in lending, both using firm- and bank-level
data. These findings are consistent with theories that predict more rigorous supervision by a centralised supervisor resulting in less lending by banks, with a consequent move by firms towards more collateralisable assets.
In summary, this points to a trade-off between growth and stability – yes, the move towards a European safety net has helped increase banking sector stability. On the other hand, the shift away
from intangible to tangible assets suggests that centralised bank supervision can slow down the shift from the "old", capital-based, to the "new", knowledge-based, economy .