Seminario Académico: "Credit Guarantees and Credit Constraints"

30 de Junio, 13:00 horas. Sala P307.

Expone: Patricio Toro, Banco Central

Credit guarantee schemes for bank loans are at the heart of most Governments’ strategies to help firms, and often direct vast volumes of credit. This paper examines Chile’s credit guarantee scheme for bank loans to small and medium enterprises (SMEs) using a regression discontinuity design around the eligibility cutoff. We find that credit guarantees have large positive effects on firms’ total borrowing without large increases in default rates, in contrast to the (limited) existing evidence. The scheme also has an amplification effect: firms increase borrowing from other banks in the eighteen months following a loan guarantee. Moreover, we show that the guarantees are used to build new bank relationships, a process which is not well understood in the literature. Finally, we show that firms use the credit increase to significantly scale up their operations. These results provide evidence that credit constraints can be important even for relatively large firms in the SME category, and even in “normal” times in a well-developed financial system.