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A valuation method for the facilitated impact of State aid in the form of loan guarantee schemes

Eleonora Broccardo
November 2009 - n°11
Keywords: state aid, guarantee, gross grant equivalent
Jel codes: G21, G28

The aim of the paper is to assess the efficiency of public aid in form of a guarantee, given the Ec State aid law. A State aid element valuation method for guarantee schemes, which highlights the effect of State aid on credit risk mitigation and takes into account the criteria for Ec eligibility, has been first modelled and then tested on guarantee schemes to Smes Italian regional loan portfolios. The result is an efficient model of credit risk intermediation with the inclusion of State aid, which positively influences the facilitated lending relationship between enterprises, mutual guarantee societies, banks and the public sector.