This chapter summarizes and empirically evaluates new regulatory policies as well as market innovations in the financial sector and their potential impact on SME financing. Using survey and balance sheet data for European SMEs, we find empirical evidence in line with the existing literature highlighting a recent deterioration in bank-based SME financing. More importantly, we provide empirical evidence suggesting that the negative macroeconomic effects of future restricted bank lending, due to new regulation, could be mitigated by policies allowing for and supporting new forms of market-based SME financing. To evaluate the financial and real effects of innovations in SME financing, we exploit the staggered introduction of SME equity and bond segments in different European countries, and show that they have been successful in providing non-bank financing to SMEs.
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