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