Concerns have been raised over whether the massive public loan guarantee schemes introduced to provide emergency lending to firms soon after the onset of Covid-19 may end up benefiting banks more than firms hit by the pandemic shock. This column uses a novel credit register dataset to show that in the euro area, government guarantees contributed to the continued extension of credit to relatively creditworthy firms hit by the pandemic, but also benefited the balance sheets of banks to some extent. Some credit substitution occurred, and therefore some guarantees transferred pre-existing credit risk from banks to taxpayers.

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