Small- and medium-sized enterprises (SMEs) account for two-thirds of employment in the euro area which makes them a priority for the transmission of monetary policy to the real economy. SMEs in Europe experienced a credit crunch following the sovereign debt crisis. Over the period 2014–2019, the European Central Bank (ECB) engaged in unconventional monetary policy (UMP) to restore funding conditions in the euro area, to support stronger economic growth and higher inflation. We use the ECB/EC Survey on the Access to Finance of Enterprises to examine the relationship between monetary policy and SME access to finance in countries that were most affected by the crisis as follows: Greece, Ireland, Italy, Portugal and Spain. We show that the implementation of UMP increases the probability that firms with higher debt-to-assets ratio remain credit constrained in stressed countries, although this effect becomes insignificant in non-stressed countries. Our findings suggest that monetary policy is transmitted unevenly to leveraged SMEs across jurisdictions. Additionally, we find little evidence that risky firms are credit constrained during periods of UMP, when risk is measured from the firms’ own viewpoint. However, our heterogenous analysis shows that smaller and younger firms—which are also considered to be risky—remain credit constrained over this period. Policy should ensure that UMP trickles down to SMEs regardless of their size, age or location. Tweetable line: Leveraged SMEs in stressed countries are more likely to remain credit constrained even when monetary policy is expansionary. Policy must do more to support small and young firms’ access to credit to facilitate higher investment and growth.
Plain English Summary
The global financial crisis which began in 2007 and the subsequent sovereign debt crisis which began in 2010 negatively affected many small- and medium-sized enterprises (SMEs) in accessing finance. Over the period 2014–2019, the ECB implemented various ‘unconventional monetary policy’ (UMP) tools to make it easier for companies to get loans, to boost economic growth and to bring inflation close to their 2% target. We use the ECB/EC Survey on the Access to Finance of Enterprises (SAFE) to examine the relationship between monetary policy and the ability of SMEs to access finance in countries that were most badly affected by the two crises. These are known as the ‘stressed’ countries and are Greece, Ireland, Italy, Portugal and Spain. We show that UMP increased the probability that firms in stressed countries with higher debt-to-assets ratio are credit constrained. However, this effect is insignificant in non-stressed countries. Additionally, we find little evidence that risky firms are credit constrained during periods of UMP, when risk is measured from the firms’ viewpoint. However, smaller and younger firms—which are also seen as risky—do suffer from financial constraints. There are a number of policy implications arising from this research. First, monetary policy should operate in a manner that SMEs in all euro-area countries have similar access to bank finance. Second, monetary policy should make sure that UMP assists smaller and younger firms. Finally, public policy could also intervene to support technologies to allow access to real-time transaction flows between banks and firms to allow banks to be better informed about the risk profile of firms and allocate funds to SMEs that warrant liquidity.
; Kapoor, Supriya 2