Loan Guarantees, Bank Lending and C redit Risk Reallocation" Carlo Altavilla, Andrew Ellul, Marco Paga no and Thomas Vlassopoulos
Abstr act:
This paper investigates wh ether government credit guarantee schemes, used extensively after the onset of the Covid-19 pandemic to support bank lending by shifting default risk to governments, led to substitution of non-guaranteed with guaranteed credi t, without leading to an increased supply of lending as intended by the pol icymakers. In principle, such substitution may be driven by banks exploitin g public guarantees as an opportunity to reduce their credit risk exposure, or by viable and liquid firms exploiting them as a chance to restructure t heir debt at lower rates – or a combination of the two. We investigate this issue using a novel harmonized credit register dataset for the entire euro area, AnaCredit, matched with supervisory bank balance-sheet data, and foc us on the four largest euro area countries. We establish two main findings. First, guaranteed loans were mostly extended to small but comparatively cr editworthy firms operating in sectors severely affected by the pandemic, an d borrowing from large, liquid and well-capitalized banks. This selection o f guarantee recipients should have reduced bank-driven substitution, by dis criminating against the riskiest firms, as well as firm-driven substitution , by discriminating against firms in resilient sectors. Our second finding concerns the existence and extent of substitution as well as its variation across firms and lenders. At firm level, guaranteed loans resulted in some substitution of pre-existing non-guaranteed debt with guaranteed loans, wit h €1 of additional loan guarantees being associated, on average, with a €0. 13 reduction in pre-existing lending. The value of this elasticity varies a cross countries, being lowest in France and highest in Spain. For firms bor rowing from multiple banks, the substitution arises from the lending behavi or of the bank extending guaranteed loans, whose drop in lending is about 1 0 times as large as for other banks lending to the same firm. Credit substi tution was highest in the case of funding granted to riskier and smaller fi rms operating in the more affected sectors, and borrowing from larger and s tronger banks. Banking relationships attenuated credit substitution. Simila r estimates, though varying in magnitude, are obtained for all countries an alyzed. Overall, the evidence indicates that in the euro area government gu arantees contributed to the continued extension of credit to relatively cre ditworthy firms hit by the pandemic, but also benefited the balance sheet o f banks to some extent.
DTSTAMP:20260911T034527Z DTSTART:20211022T130000Z DTEND:20211022T140000Z SEQUENCE:0 TRANSP:OPAQUE END:VEVENT END:VCALENDAR