The dangers of market-based as opposed to bank-based corporate financing have become apparent again

The euro zone’s model of corporate financing is shifting towards the US model, where marked-based financing (via bond issuance) comfortably prevails over financing via bank credit. This is mainly due to Europe’s new banking regulations, which require banks to reduce the loans they keep on their balance sheets to reduce their capital consumption. But it is important to realise that market-based corporate financing can be extremely procyc lical. When risk aversion rises, the corporate bond market seizes up and companies can no longer finance themselves, as has been witness ed again in the United States in the recent period.