that receive a small recapitalization relative to their capital shortfall reduce lending and shrink assets. These results … between 2000 and 2013. Controlling for market implied capital shortfall of banks, we find that banks that receive a … sufficiently large recapitalization increase lending, attract more deposits and clean up their balance sheets. In contrast, banks …

I develop a model where the sovereign debt capacity depends on the capitalization of domestic banks. Low-capital banks … the sovereign risk is sufficiently high, low-capital banks reduce private lending to further increase their holdings of …, in the context of the eurozone periphery, the increase in domestic government bond holdings, the reduction of bank credit …