Public Credit Guarantees and Financial Additionalities Across SME Risk Classes

56 Pages Posted: 28 May 2020

Date Written: February 12, 2020

Abstract

In this paper we study the functioning of the Italian public guarantee fund (“Fondo Centrale di Garanzia”, FCG) for small and medium enterprises (SMEs). Using an instrumental variable strategy, based on FCG eligibility, we investigate whether the guarantee generated additional loans and/or lower interest rates for SMEs. Unlike previous literature, by focusing on the lending activity of a single large Italian lender, we control for the probability of default as assessed by the bank’s internal rating model, and we examine whether the effects of the guarantee differ across firms belonging to different classes of risk. We find that guaranteed firms receive an additional amount of credit equal to 7-8 percent of their total banking exposure. We also estimate a reduction of about 50 basis points in interest rates applied to term loans granted to guaranteed firms. The effects on credit availability are concentrated in the intermediate class of solvent firms, i.e. those that are neither too safe nor too risky. Conversely, interest rate effects are present in all classes, except for the least risky firms. Finally, we observe a stronger impact of the guarantee for solvent firms with a longer relationship with the bank, questioning the ability of very young firms to reduce financial frictions.

Keywords: credit guarantees, access to credit, banking

JEL Classification: L25, O12, G28

Suggested Citation

Ciani, Emanuele and Gallo, Marco and Rotondi, Zeno, Public Credit Guarantees and Financial Additionalities Across SME Risk Classes (February 12, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1265, Available at SSRN: https://ssrn.com/abstract=3612924 or http://dx.doi.org/10.2139/ssrn.3612924

Emanuele Ciani

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Marco Gallo (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Zeno Rotondi

UniCredit Group ( email )

Via Andegari, 12
Milan, 20122
Italy

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