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 declines in crossborder interbank lending during the eurozone crisis. As a result, domestic banks reduced lending, which led to large declines in output in sectors with many small (bank-dependent)

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... We propose a quantitative small open economy model to account for these patterns and conclude that a global banking shock leading to a sudden stop in cross-border interbank lending in the eurozone is required to account for them.