10bet online sports bettingAs part of the series of the „Finance Research Seminar“, VGSF welcomes Victoria Vanasco from CREI-Centre de Recerca en Economia International to present her research paper.
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Paper
Banks vs. Firms: Who Benefits from Credit Guarantees?
(joint with Alberto Martin and Sergio Mayordomo)
Governments often support private credit with guarantee schemes, compensating lenders for borrower defaults. Such schemes often rely on banks to allocate guarantees among borrowers, but how banks do so is not well understood. We study this in an economy where entrepreneurial effort is crucial for efficiency but not contractible, 10bet mobile betting appcreating a debt overhang problem. Credit guarantees can alleviate this problem only if they lower repayment obligations. We show that banks follow a pecking order, prioritizing risky, highly indebted firms from whom they extract more guarantee surplus by increasing repayment obligations. The competitive equilibrium is inefficient: a social planner would tilt the allocation towards more productive firms and pass all benefits through lower repayments. Our findings align with evidence from guarantees granted in Spain post-COVID.
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