The impact of the recent financial crisis on bank loan interest rates and guarantees

Giorgio Calcagnini, Fabio Farabullini () and Germana Giombini
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Fabio Farabullini: Bank of Italy

No 1202, Working Papers from University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini

Abstract: The paper analyzes the role of guarantees on loan interest rates before and during the recent financial crisis in Italian firm financing. The paper improves on existing literature by distinguishing between real and personal guarantees. Further, the paper investigates the potential different role of guarantees in the bank-borrower relationship during the recent financial crisis. This paper draws from individual Italian bank and firm data taken from the Banks? Supervisory Reports to the Bank of Italy and the Central Credit Register over the period 2006-2009. Our analysis demonstrates that collateral affects the cost of credit of Italian firms by systematically reducing the interest rate of secured loans, while personal guarantees increase it. These effects are amplified during the crisis. Furthermore, guarantees are a more powerful instrument for ex-ante riskier borrowers than for safer borrowers. Indeed, riskier borrowers obtain significantly lower interest rates on secured loans than interest rate they would be charged on unsecured loans.

Keywords: Financial crisis; Guarantees; Multilevel model. (search for similar items in EconPapers)
JEL-codes: D82 E43 G21 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2012, Revised 2012
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-mac
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Citations: View citations in EconPapers (1)

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http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_12_02.pdf First version, 2012 (application/pdf)

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Working Paper: The impact of the recent financial crisis on bank loan interest rates and guarantees (2012)
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