Loan guarantees, bank lending and credit risk reallocation

Arbeitspapier

We investigate whether government credit guarantee schemes, extensively used at the onset of the Covid-19 pandemic, led to substitution of non-guaranteed with guaranteed credit rather than fully adding to the supply of lending. We study this issue using a unique euro-area credit register data, matched with supervisory bank data, and establish two main findings. First, guaranteed loans were mostly extended to small but comparatively creditworthy firms in sectors severely affected by the pandemic, borrowing from large, liquid and well-capitalized banks. Second, guaranteed loans partially substitute pre-existing non-guaranteed debt. For firms borrowing from multiple banks, the substitution mainly arises from the lending behavior of the bank extending guaranteed loans. Substitution was highest for funding granted to riskier and smaller firms in sectors more affected by the pandemic, and borrowing from larger and stronger banks. Overall, the evidence indicates that government guarantees contributed to the continued extension of credit to relatively creditworthy firms hit by the pandemic, but also benefited banks' balance sheets to some extent.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper Series ; No. 672

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: Government Policy and Regulation ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Crisis Management ; Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
• Subject: loan guarantees ; bank lending ; COVID-19 pandemic ; substitution ; credit risk

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Altavilla, Carlo ; Ellul, Andrew ; Pagano, Marco ; Polo, Andrea ; Vlassopoulos, Thomas
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/248407
• Last update: 10.03.2025, 11:44 AM CET