Loan Guarantees, Bank Lending and Credit Risk Reallocation

70 Pages Posted: 18 Nov 2021 Last revised: 13 Dec 2023

See all articles by Carlo Altavilla

Carlo Altavilla

European Central Bank (ECB)

Andrew Ellul

Indiana University - Kelley School of Business - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Marco Pagano

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Andrea Polo

Luiss Guido Carli University - Department of Economics and Finance; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Thomas Vlassopoulos

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: December 12, 2023

Abstract

Do banks extending government-guaranteed loans simultaneously reduce their risk exposure to firms? Using unique euro-area credit register data and the COVID-19 guarantee programs as a laboratory, we find that banks extending guaranteed loans reduced non-guaranteed credit by over 30% relative to other banks lending to the same firm. Substitution was highest for riskier and smaller firms in more affected sectors and for stronger banks. Nevertheless, banks offered cheaper credit and longer maturities to guaranteed loan recipients, especially more fragile ones. This improvement in lending terms is the flipside of credit substitution: the two correlate positively.

Keywords: loan guarantees, bank lending, COVID-19 pandemic, substitution, credit risk

JEL Classification: G18, G21, E63, H12, H81

Suggested Citation

Altavilla, Carlo and Ellul, Andrew and Pagano, Marco and Polo, Andrea and Vlassopoulos, Thomas, Loan Guarantees, Bank Lending and Credit Risk Reallocation (December 12, 2023). European Corporate Governance Institute – Finance Working Paper No. 944/2023, Available at SSRN: https://ssrn.com/abstract=3963246 or http://dx.doi.org/10.2139/ssrn.3963246

Carlo Altavilla

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Andrew Ellul

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Marco Pagano

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Einaudi Institute for Economics and Finance (EIEF)

Via Sallustiana, 62
Rome, 00187
Italy

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Andrea Polo (Contact Author)

Luiss Guido Carli University - Department of Economics and Finance ( email )

Via Kennedy 6
Parma, 43100 - I
Italy

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Thomas Vlassopoulos

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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