Small businesses (SMEs) depend on banks for credit. We show that the severity of the Eurozone crisis was worse in countries where firms borrowed more from domestic banks ("domestic bank dependence") than in countries where firms borrowed more from international banks. Eurozone banking...

After the inception of the euro, the real economy in most member countries remained dependent on credit by domestic banks, which increasingly funded themselves through cross-border interbank funding. We find that this pattern of 'double-decker' banking integration exposed domestic banks to sharp...