How the State Banking Alliance Saved Businesses

THE STATE GUARANTEED LOANS DID NOT PUT TOO MUCH STRESS ON PUBLIC DEBT AND ALLOWED BANKS TO DO THEIR JOB, ACCORDING TO MARIATERESA MAGGIOLINO

The blocking of production and distribution during the first lockdown required immediate action by public authorities in order to provide relief to businesses that were suddenly in a liquidity crisis. Within this context, the State called upon the banks, giving the institutions the task of acting as a transmission belt between the public and the real economy. This topic is the focus of the most recent studies by Mariateresa Maggiolino, Professor of Commercial Law and antitrust expert, including the essay “Notes on the Role of Banks in the Time of Covid-19,” published in the journal Rivista delle società.
 
“The most obvious answer to the corporate liquidity crisis could have been the public administration lending money,” Professor Maggiolino says, “but the magnitude of the phenomenon was not sustainable. Therefore, the State asked the banks to transfer this liquidity to businesses by guaranteeing loans. This mechanism was made possible because the institutions are in a situation of general health, that is, they are under limited distress. This would not have been possible just 10-15 years ago.”
 
According to the Professor's analyses, the cycle that was activated has proved to be virtuous from many points of view: without grants but instead with this loan formula, the State has in fact bet on the future of businesses. It has gained time, avoiding aggravating public debt and letting the banks do their job by differentiating good and bad debtors or carrying out anti-money laundering or anti-mafia checks. “In the study, there is a chapter that describes how the ECB and EBA, foreseeing a probable increase in bad loans, instructed banks on how to handle non-performing loans (NPLs), trying to give flexibility to the entire system and defining the return strategies for this difficult period. Unfortunately, despite this, they all agree that the NPL market will grow in 2021 because bad payers will increase, so much so that the EU is thinking of creating a European 'bad bank.'”
 
But did the Italian State's gamble on companies pay off in the end? “This is the question that we have also asked ourselves,” concludes the Professor. “And we would like to answer it with a future study, to analyze how many times the State guarantee was actually needed to settle debts and how often companies were able to do so on their own. The problem is that, since we still have not returned to a normal situation, we have not yet found the right time to start this observation.”
 
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by Emanuele Elli
Translated by Alex Foti