Loan Guarantees, Bank Lending and Credit Risk Reallocation

51 Pages Posted: 18 Nov 2021 Last revised: 8 Aug 2022

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

University of Naples Federico II - Department of Economics and Statistics; 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; Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Einaudi Institute for Economics and Finance (EIEF); Barcelona Graduate School of Economics (Barcelona GSE); 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: November 14, 2021

Abstract

How do government loan guarantees reallocate bank lending and credit risk? Using unique euro-area credit register data and exploiting the COVID-19 loan guarantee programs as a laboratory, we establish two main findings. First, guaranteed loans were mostly extended to small but creditworthy firms in sectors severely affected by the pandemic, borrowing from larger and stronger banks. Second, guaranteed loans partially substituted for pre-existing debt. Banks extending guaranteed loans reduced non-guaranteed credit by about 40% more than other banks lending to the same firm. Substitution was highest for riskier and smaller firms in more affected sectors, and for stronger banks.

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 (November 14, 2021). 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

University of Naples Federico II - Department of Economics and Statistics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy
+39 081 675306 (Phone)
+39 081 7663540 (Fax)

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

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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

Via Due Macelli, 73
Rome, 00187
Italy

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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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