Loan guarantees and credit supply

Natalie Bachas, Olivia S. Kim and Constantine Yannelis

Journal of Financial Economics, 2021, vol. 139, issue 3, 872-894

Abstract: The efficiency of federal lending guarantees depends on whether guarantees increase lending supply or simply act as a subsidy to lenders. We use notches in the guarantee rate schedule for Small Business Administration (SBA) loans to estimate the elasticity of bank lending volume to loan guarantees. We show significant bunching in the loan distribution on the side of the size threshold that carries a more generous loan guarantee. The excess mass implies that increasing guarantee generosity by one percentage point of loan principal would increase per-loan lending volume by $19,000. Excess mass increases in periods with guarantee generosity, and placebo results indicate that the effect disappears when the guarantee notch is eliminated.

Keywords: Bank lending; Loan guarantee; Government loans; Borrowing; Policy (search for similar items in EconPapers)
JEL-codes: G21 G28 H81 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:139:y:2021:i:3:p:872-894

DOI: 10.1016/j.jfineco.2020.08.008

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