The effect of bank bail-outs in the EU

The financial crisis renewed the debate on the bail-out of financial institutions, questioning the effectiveness of such an intervention in restoring normal economic conditions. This paper analyzes the effect on the real economy of State financial support to distressed banks, using a panel approach that covers all countries in the EU throughout the financial crisis. Results show that State financial support was able to enhance economic conditions by restoring trust in financial markets. State support boosted the ongoing substitution between securities and bank lending as the main financing channel of non-financial firms. (C) 2019 Elsevier Ltd. All rights reserved.