DP15799 Public Guarantees for Small Businesses in Italy during Covid-19

Author(s): Fabrizio Core, Filippo De Marco
Publication Date: February 2021
Keyword(s): COVID-19, Information Technology, Lending relationships, liquidity constraints, public guarantees
JEL(s): G21, G28
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15799

This paper investigates whether the private sector can efficiently allocate public funds during a crisis. Using loan-level data, we exploit the unique features of the Italian public guarantee scheme during Covid-19 to study lenders' incentives to distribute government guaranteed credit. Our results indicate that two key bank characteristics facilitated loan disbursement: size and information technology. These factors are important because of the high volume of online applications and low interest margins on guaranteed lending. Pre-existing relationships matter for the allocation of guaranteed credit, as banks lend more in their core markets and where they have a larger share of local branches.