Does alternative finance moderate bank fragility? Evidence from the euro area

Over recent years stricter EU capital requirements have resulted in constraining bank lending to SMEs. Alternative finance is expected ease such constraints, but what would it be its impact on fragility? This paper examines whether alternative for Small and Medium Enterprises (SMEs) the euro area moderate fragility. We employ a profit model from which we derive novel measure of fragility that based micro-foundations estimated single stage with Bayesian techniques. Controlling many firm specific variables, including adequacy ratios volatility, find overall strengthens stability, there some variability this over time across countries. Interestingly, while higher at times may even increase fragility, their interactions could help reduce it.