Abstract
By the end of 2013, the share of government debt held by the domestic banking sectors of Eurozone countries was more than twice the amount held in 2007. We show that increased government bond holdings generated a crowding out of corporate lending, which is consistent with financial repression. Firms were more likely to substitute loans with bonds when local banks owned more domestic sovereign debt, especially when that debt was risky. We show that direct government ownership, as well as government influence through banks’ boards of directors, are among the channels used to exercise financial repression.