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

This paper studies the distribution of credit during crisis times and its impact on firm indebtedness and macroeconomic risk. Whereas policies can help firms in need of financing, they can lead to adverse selection from riskier firms and higher default...

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Main Authors:	Huneeus, Federico, Kaboski, Joseph P., Larrain, Mauricio, Schmukler, Sergio L., Vera, Mario
Format:	Policy Research Working Paper
Language:	English
Published:	Washington, DC: World Bank 2022
Subjects:	CREDIT PROGRAM; EMPLOYMENT PROGRAM; GUARANTEED LOAN; GUARANTEED LOANS; DEVELOPMENT RESEARCH GROUP; PUBLIC CREDIT; ABSENCE OF GOVERNMENT PROGRAMS; LIQUIDITY SUPPORT TO BANK; RISK-SHARING ARRANGEMENT; MARGINAL RETURN TO CAPITAL; SALES GROWTH; ADVERSE SELECTION; GUARANTEE PROGRAM; FINANCIAL MARKET; NUMBER OF WORKERS; VALUE ADDED; LOW INTEREST RATE; ALLOCATION OF CREDIT; NET WORTH; DEFAULT PROBABILITY; RISK OF DEFAULT; UNEMPLOYMENT INSURANCE FUND; CREDIT GUARANTEE; HIGH DEFAULT RISK; AMOUNT OF CREDIT; HIGHER INTEREST RATE; RISK-WEIGHTED ASSET; AMOUNT OF DEBT; INCREASE IN DEBT; CHANCE OF SURVIVAL; STATE-OWNED BANKS; LOWER INTEREST RATE; PRIVATE SECTOR RESPONSE; LIKELIHOOD OF DEFAULT; LINEAR PROBABILITY MODEL; UNEMPLOYMENT INSURANCE PROGRAM; REAL INTEREST RATE; FIRM IN DEFAULT; BANK'S LOAN PORTFOLIO; EVENT OF DEFAULT; SUPPLY OF CREDIT
Online Access:	http://documents.worldbank.org/curated/en/874031644864101145/The-Distribution-of-Crisis-Credit-Effects-on-Firm-Indebtedness-and-Aggregate-Risk http://hdl.handle.net/10986/37013

id	okr-10986-37013
recordtype	oai_dc
spelling	okr-10986-370132022-02-23T05:10:35Z The Distribution of Crisis Credit : Effects on Firm Indebtedness and Aggregate Risk Huneeus, Federico Kaboski, Joseph P. Larrain, Mauricio Schmukler, Sergio L. Vera, Mario CREDIT PROGRAM; EMPLOYMENT PROGRAM; GUARANTEED LOAN; GUARANTEED LOANS; DEVELOPMENT RESEARCH GROUP; PUBLIC CREDIT; ABSENCE OF GOVERNMENT PROGRAMS; LIQUIDITY SUPPORT TO BANK; RISK-SHARING ARRANGEMENT; MARGINAL RETURN TO CAPITAL; SALES GROWTH; ADVERSE SELECTION; GUARANTEE PROGRAM; FINANCIAL MARKET; NUMBER OF WORKERS; VALUE ADDED; LOW INTEREST RATE; ALLOCATION OF CREDIT; NET WORTH; DEFAULT PROBABILITY; RISK OF DEFAULT; UNEMPLOYMENT INSURANCE FUND; CREDIT GUARANTEE; HIGH DEFAULT RISK; AMOUNT OF CREDIT; HIGHER INTEREST RATE; RISK-WEIGHTED ASSET; AMOUNT OF DEBT; INCREASE IN DEBT; CHANCE OF SURVIVAL; STATE-OWNED BANKS; LOWER INTEREST RATE; PRIVATE SECTOR RESPONSE; LIKELIHOOD OF DEFAULT; LINEAR PROBABILITY MODEL; UNEMPLOYMENT INSURANCE PROGRAM; REAL INTEREST RATE; FIRM IN DEFAULT; BANK'S LOAN PORTFOLIO; EVENT OF DEFAULT; SUPPLY OF CREDIT This paper studies the distribution of credit during crisis times and its impact on firm indebtedness and macroeconomic risk. Whereas policies can help firms in need of financing, they can lead to adverse selection from riskier firms and higher default risk. The paper analyzes a large-scale program of public credit guarantees in Chile during the COVID-19 pandemic using unique transaction-level data on the demand and supply of credit, matched with administrative tax data, for the universe of banks and firms. Credit demand channels loans toward riskier firms, distributing 4.6 percent of gross domestic product and increasing firm leverage. Despite increased lending to riskier firms, macroeconomic risks remain small. Several factors mitigate aggregate risk: the small weight of riskier firms, the exclusion of the riskiest firms, bank screening, contained expected defaults, and the government absorption of tail risk. The empirical findings are confirmed with a model of heterogeneous firms and endogenous default. 2022-02-22T17:04:35Z 2022-02-22T17:04:35Z 2022-02-14 http://documents.worldbank.org/curated/en/874031644864101145/The-Distribution-of-Crisis-Credit-Effects-on-Firm-Indebtedness-and-Aggregate-Risk http://hdl.handle.net/10986/37013 English CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank Washington, DC: World Bank Policy Research Working Paper Publications & Research Latin America & Caribbean Latin America & Caribbean Chile
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	CREDIT PROGRAM; EMPLOYMENT PROGRAM; GUARANTEED LOAN; GUARANTEED LOANS; DEVELOPMENT RESEARCH GROUP; PUBLIC CREDIT; ABSENCE OF GOVERNMENT PROGRAMS; LIQUIDITY SUPPORT TO BANK; RISK-SHARING ARRANGEMENT; MARGINAL RETURN TO CAPITAL; SALES GROWTH; ADVERSE SELECTION; GUARANTEE PROGRAM; FINANCIAL MARKET; NUMBER OF WORKERS; VALUE ADDED; LOW INTEREST RATE; ALLOCATION OF CREDIT; NET WORTH; DEFAULT PROBABILITY; RISK OF DEFAULT; UNEMPLOYMENT INSURANCE FUND; CREDIT GUARANTEE; HIGH DEFAULT RISK; AMOUNT OF CREDIT; HIGHER INTEREST RATE; RISK-WEIGHTED ASSET; AMOUNT OF DEBT; INCREASE IN DEBT; CHANCE OF SURVIVAL; STATE-OWNED BANKS; LOWER INTEREST RATE; PRIVATE SECTOR RESPONSE; LIKELIHOOD OF DEFAULT; LINEAR PROBABILITY MODEL; UNEMPLOYMENT INSURANCE PROGRAM; REAL INTEREST RATE; FIRM IN DEFAULT; BANK'S LOAN PORTFOLIO; EVENT OF DEFAULT; SUPPLY OF CREDIT
spellingShingle	CREDIT PROGRAM; EMPLOYMENT PROGRAM; GUARANTEED LOAN; GUARANTEED LOANS; DEVELOPMENT RESEARCH GROUP; PUBLIC CREDIT; ABSENCE OF GOVERNMENT PROGRAMS; LIQUIDITY SUPPORT TO BANK; RISK-SHARING ARRANGEMENT; MARGINAL RETURN TO CAPITAL; SALES GROWTH; ADVERSE SELECTION; GUARANTEE PROGRAM; FINANCIAL MARKET; NUMBER OF WORKERS; VALUE ADDED; LOW INTEREST RATE; ALLOCATION OF CREDIT; NET WORTH; DEFAULT PROBABILITY; RISK OF DEFAULT; UNEMPLOYMENT INSURANCE FUND; CREDIT GUARANTEE; HIGH DEFAULT RISK; AMOUNT OF CREDIT; HIGHER INTEREST RATE; RISK-WEIGHTED ASSET; AMOUNT OF DEBT; INCREASE IN DEBT; CHANCE OF SURVIVAL; STATE-OWNED BANKS; LOWER INTEREST RATE; PRIVATE SECTOR RESPONSE; LIKELIHOOD OF DEFAULT; LINEAR PROBABILITY MODEL; UNEMPLOYMENT INSURANCE PROGRAM; REAL INTEREST RATE; FIRM IN DEFAULT; BANK'S LOAN PORTFOLIO; EVENT OF DEFAULT; SUPPLY OF CREDIT Huneeus, Federico Kaboski, Joseph P. Larrain, Mauricio Schmukler, Sergio L. Vera, Mario The Distribution of Crisis Credit : Effects on Firm Indebtedness and Aggregate Risk
geographic_facet	Latin America & Caribbean Latin America & Caribbean Chile
description	This paper studies the distribution of credit during crisis times and its impact on firm indebtedness and macroeconomic risk. Whereas policies can help firms in need of financing, they can lead to adverse selection from riskier firms and higher default risk. The paper analyzes a large-scale program of public credit guarantees in Chile during the COVID-19 pandemic using unique transaction-level data on the demand and supply of credit, matched with administrative tax data, for the universe of banks and firms. Credit demand channels loans toward riskier firms, distributing 4.6 percent of gross domestic product and increasing firm leverage. Despite increased lending to riskier firms, macroeconomic risks remain small. Several factors mitigate aggregate risk: the small weight of riskier firms, the exclusion of the riskiest firms, bank screening, contained expected defaults, and the government absorption of tail risk. The empirical findings are confirmed with a model of heterogeneous firms and endogenous default.
format	Policy Research Working Paper
author	Huneeus, Federico Kaboski, Joseph P. Larrain, Mauricio Schmukler, Sergio L. Vera, Mario
author_facet	Huneeus, Federico Kaboski, Joseph P. Larrain, Mauricio Schmukler, Sergio L. Vera, Mario
author_sort	Huneeus, Federico
title	The Distribution of Crisis Credit : Effects on Firm Indebtedness and Aggregate Risk
title_short	The Distribution of Crisis Credit : Effects on Firm Indebtedness and Aggregate Risk
title_full	The Distribution of Crisis Credit : Effects on Firm Indebtedness and Aggregate Risk
title_fullStr	The Distribution of Crisis Credit : Effects on Firm Indebtedness and Aggregate Risk
title_full_unstemmed	The Distribution of Crisis Credit : Effects on Firm Indebtedness and Aggregate Risk
title_sort	distribution of crisis credit : effects on firm indebtedness and aggregate risk
publisher	Washington, DC: World Bank
publishDate	2022
url	http://documents.worldbank.org/curated/en/874031644864101145/The-Distribution-of-Crisis-Credit-Effects-on-Firm-Indebtedness-and-Aggregate-Risk http://hdl.handle.net/10986/37013
_version_	1764486338318434304

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

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