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Public credit guarantee and financial additionalities across SME risk classes

Author

Listed:
  • Emanuele Ciani

    (Bank of Italy)

  • Marco Gallo

    (Bank of Italy)

  • Zeno Rotondi

    (UniCredit)

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 the eligibility for the FCG, we investigate whether the guarantee generated additional loans and/or lower interest rates to SMEs. Differently from 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 of 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 neither too safe nor too risky. Conversely, interest rate effects are present in all classes, but for the least risky firms. Finally, we observe a stronger impact of the guarantee for solvent firms with a longer relationship with the bank. This finding questions their ability to reduce financial frictions for very young firms.

Suggested Citation

  • Emanuele Ciani & Marco Gallo & Zeno Rotondi, 2020. "Public credit guarantee and financial additionalities across SME risk classes," Temi di discussione (Economic working papers) 1265, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_1265_20
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    References listed on IDEAS

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    Cited by:

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    2. Luca Casolaro & Francesco Suppressa, 2023. "Credit during the pandemics: the case of Tuscany," Discussion Papers 2023/296, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Buchetti, Bruno & Miquel-Flores, Ixart & Perdichizzi, Salvatore & Reghezza, Alessio & Lin, Luca X., 2024. "Loan guarantee and portfolio greening: evidence from European credit registers," Working Paper Series 2916, European Central Bank.
    4. Di Bartolomeo, Giovanni & D'Imperio, Paolo & Felici, Francesco, 2022. "The fiscal response to the Italian COVID-19 crisis: A counterfactual analysis," Journal of Macroeconomics, Elsevier, vol. 73(C).

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    Keywords

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    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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