DP17061 The Distribution of Crisis Credit: Effects on Firm Indebtedness and Aggregate Risk

Author(s): Federico Huneeus, Joseph Kaboski, Mauricio Larrain, Sergio Schmukler, Mario Vera
Publication Date: February 2022
Keyword(s): Bank credit demand, bank credit supply, COVID-19, Crises, debt, firm risk, Macroeconomic Risk, public credit guarantees
JEL(s): G21, G28, G32, G33, G38, I18
Programme Areas: Public Economics, Financial Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17061

We study the distribution of credit during crisis times and its impact on firm indebtedness and macroeconomic risk. We analyze a public credit guarantee program in Chile during the COVID-19 pandemic using unique transaction-level data of demand and supply of credit, matched with tax data, for the universe of banks and firms. Credit demand channels loans toward riskier firms, distributing 4.6% of GDP and increasing firm leverage. Despite increased lending to riskier firms at the micro level, macroeconomic risks remain small because of several mitigating factors. We confirm our empirical findings with a model of heterogeneous firms and endogenous default.