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Public-Guaranteed Loans, Bank Risk-Taking and Regulatory Capital Windfall
[Prêts garantis par l'État, prise de risque bancaire et effet d'aubaine sur le capital réglementaire]

Author

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  • Théo Nicolas
  • Stefano Ungaro
  • Éric Vansteenberghe

Abstract

We study the effect of public-guaranteed loans (PGLs) on bank risk-taking during the Covid-19 pandemic in France. The presence of guarantee schemes may foster riskier lending, pushing banks to lend to riskier borrowers or worsening incentives to prevent write-offs of loan applicants. Yet, we find that the partial government guarantee (between 70\% and 90\% of the loan) encouraged banks to lend according to their usual risk criteria so that the safest companies have obtained higher amounts of PGL. In addition, banks that were lowly capitalized and more exposed to non-performing loans (NPLs) before the pandemic granted higher amounts of PGLs, thereby using the guaranteed loan program to improve their financial position and reduce their risk-weighted assets (RWA) through a regulatory capital windfall effect. Finally, at the aggregate bank level, we find that PGLs had no impact on the overall credit risk of banks portfolio. Nous étudions l'impact des prêts garantis par l'État (PGE) sur la prise de risques des banques durant la pandémie de Covid-19 en France. La présence de mécanismes de garantie peut non seulement inciter les banques à prêter à des emprunteurs plus risqués mais également diminuer leurs efforts pour prévenir les défauts de paiement. Toutefois, nous constatons que la garantie partielle du gouvernement (représentant entre 70 % et 90 % du prêt) a encouragé les banques à prêter selon leurs critères de risque habituels, de telle sorte que les entreprises les plus solides ont obtenu des montants de PGE plus importants. De plus, les banques qui étaient peu capitalisées et davantage exposées aux prêts non performants (NPL) avant la pandémie ont accordé des montants de PGE plus élevés, utilisant ainsi le programme pour améliorer leur situation financière et réduire leurs actifs pondérés par le risque (RWA) grâce à un effet d'aubaine réglementaire. Enfin, au niveau agrégé par banque, nous trouvons que les PGE n'ont pas influé sur le risque de crédit global du portefeuille des banques.

Suggested Citation

  • Théo Nicolas & Stefano Ungaro & Éric Vansteenberghe, 2023. "Public-Guaranteed Loans, Bank Risk-Taking and Regulatory Capital Windfall [Prêts garantis par l'État, prise de risque bancaire et effet d'aubaine sur le capital réglementaire]," Débats économiques et financiers 41, Banque de France.
    • Handle: RePEc:bfr:decfin:41
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    More about this item

    Keywords

    Loan Guarantees; Bank Lending; COVID-19 Pandemic; Credit Risk;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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