Estimating Firm Liquidity Needs: When should governments guarantee bank loans?

The COVID-19 crisis has induced a sharp drop in cash flow for many firms, possibly pushing solvent but illiquid firms into bankruptcy. Fabiano Schivardi tells Tim Phillips about a simple method that governments could use to determine the number of firms that could become illiquid, and when. When the method is applied to the population of Italian businesses he finds that at the peak, around 200,000 companies (employing 3.3 million workers) could become illiquid due to a total liquidity shortfall of €72 billion euros. It is essential that policymakers shelter businesses by acting quickly, especially if there is a ‘second peak’ after the summer.