Cooperative Banks and Municipal Saving Banks: Which Effects do Local Banks have on SMEs?
IED Research Paper by Horst Gischer & Bernhard Herz
This research shows that small and medium-sized enterprises and their financing by local banks are crucial for the sustainable regional development in Europe.
#SME, #local bank, #regional development, #Covid-19, #Green Deal
The aim of this study is to identify and analyse the distortions that prevent regions and SMEs to realize their full potential and follow a sustainable path of economic and social development. We focus on the national and regional interlinkages between the real and the financial sector as research on the role of financing for SMEs in Europe is scarce.
In our empirical approach we focus on a sample of six EU Member States, namely Austria, France, Germany, Italy, Spain, and Sweden, reflecting the diversity of real and financial sectors in the EU. We check for comparative advantages, analyse whether shortcomings in financing corporate investments cause regions to lag in economic performances, and look for workable solutions to overcome these deficiencies. Particular attention is paid to SMEs and their local business conditions.
There is little doubt that economic integration and the free movement of capital, people, goods and services increase the level of public welfare. However, they do not guarantee that these benefits are uniformly distributed across regions or that disadvantaged, low-income regions should even benefit disproportionately.
In the Covid-19 pandemic SMEs are hit more strongly than large and internationally operating firms as they are less able to diversify and tend to receive less public support. Regional banks proved to be very helpful in implementing state aid measures and channeling funds to SMEs in need.
In the fight against global warming, the EU Green Deal calls for innovative ideas in technology and new business models. The new approaches are implemented in a decentralized and local way, so that SMEs are natural leaders to monitor and benefit from this transformation process. Regional banks play an important role in this grand challenge, as their detailed knowledge of local conditions is vital for an appropriate allocation of funds and government aid.
About the Authors
Horst Gischer serves as a Professor of Economics at the University of Magdeburg and managing director of the Research Center for Savings Banks' Development. His fields of interest are financial systems, new empirical industrial organization, and public financial institutions.
Bernhard Herz is a Professor of Economics at the University of Bayreuth and managing director of the Research Center on Banking Law and Banking Policy. His research topics include international and monetary economics, as well as international banking systems.