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The impact of the recent financial crisis on bank loan interest rates and guarantees

Author

Listed:
  • Giorgio Calcagnini

    () (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")

  • Fabio Farabullini

    () (Bank of Italy)

  • Germana Giombini

    () (Department of Economics, Society & Politics, Università di Urbino "Carlo Bo")

Abstract

The paper analyzes the role of guarantees on loan interest rates before and during the recent financial crisis in Italian firm financing. The paper improves on existing literature by distinguishing between real and personal guarantees. Further, the paper investigates the potential different role of guarantees in the bank-borrower relationship during the recent financial crisis. This paper draws from individual Italian bank and firm data taken from the Banks? Supervisory Reports to the Bank of Italy and the Central Credit Register over the period 2006-2009. Our analysis demonstrates that collateral affects the cost of credit of Italian firms by systematically reducing the interest rate of secured loans, while personal guarantees increase it. These effects are amplified during the crisis. Furthermore, guarantees are a more powerful instrument for ex-ante riskier borrowers than for safer borrowers. Indeed, riskier borrowers obtain significantly lower interest rates on secured loans than interest rate they would be charged on unsecured loans.

Suggested Citation

  • Giorgio Calcagnini & Fabio Farabullini & Germana Giombini, 2012. "The impact of the recent financial crisis on bank loan interest rates and guarantees," Working Papers 1202, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2012.
    • Handle: RePEc:urb:wpaper:12_02
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    File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_12_02.pdf
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    References listed on IDEAS

    as
    1. Cowling, Marc, 2010. "The role of loan guarantee schemes in alleviating credit rationing in the UK," Journal of Financial Stability, Elsevier, vol. 6(1), pages 36-44, April.
    2. Michael Manove & A. Jorge Padilla, 1999. "Banking (Conservatively) with Optimists," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 324-350, Summer.
    3. Arito Ono & Iichiro Uesugi, 2009. "Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's SME Loan Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 935-960, August.
    4. Arthur Lewbel, 1997. "Constructing Instruments for Regressions with Measurement Error when no Additional Data are Available, with an Application to Patents and R&D," Econometrica, Econometric Society, vol. 65(5), pages 1201-1214, September.
    5. Peter Ebbes & Ulf Böckenholt & Michel Wedel, 2004. "Regressor and random‐effects dependencies in multilevel models," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 58(2), pages 161-178, May.
    6. Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-689, October.
    7. Kose John & Anthony W. Lynch & Manju Puri, 2003. "Credit Ratings, Collateral, and Loan Characteristics: Implications for Yield," The Journal of Business, University of Chicago Press, vol. 76(3), pages 371-410, July.
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    9. Pozzolo, Alberto Franco, 2004. "The Role of Guarantees in Bank Lending," Economics & Statistics Discussion Papers esdp04021, University of Molise, Dept. EGSeI.
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    More about this item

    Keywords

    Financial crisis; Guarantees; Multilevel model.;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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