Public Guarantees for Small Businesses in Italy during COVID-19

Abstract

This paper investigates whether banks' information technology (IT) and physical branch presence affect the supply of government guaranteed credit. For identification, we exploit loan level data and the unique institutional features of the Italian public guarantee scheme during Covid-19. Our results indicate that banks with better IT provide more, cheaper and faster guaranteed loans. However, the structure of local banking markets still matters: banks with better IT charge lower rates in less concentrated markets. Moreover, despite the high volume of online loan applications, guaranteed lending remained local: banks lent more in their core markets and where they have an ex-ante larger market share.

Keywords: public guarantees, COVID-19, liquidity constraints, information technology, bank heterogeneity, interest rates

JEL Classification: G32, G38, H25, H32, E62