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Journal of Financial Economics Vol. 172 2025

Loan guarantees, bank lending and credit risk reallocation

Carlo Altavilla1; Andrew Ellul2,3,4,5,6; Marco Pagano; Andrea Polo; Thomas Vlassopoulos1

1 European Central Bank · 2 European Corporate Governance Institute · 3 Centre for Economic Policy Research · 4 Centre for Studies in Economics and Finance · 5 Indiana University · 6 University of Naples Federico II

open access

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 1 euro of guaranteed lending was associated with a reduction of 28 cents in non-guaranteed credit, 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.

DOI
10.1016/j.jfineco.2025.104137
Volume
172
Pages
104137
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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