Who defaults during COVID-19? Evidence from local lockdown restrictions

• We assess how local COVID-19 lockdown intensity affected personal loan default risk • Stricter local COVID-19 lockdowns raised personal loan default risk • The effect is strongest for high-credit-score borrowers, weakest for homeowners • Low-income borrowers are most affected due to limited financial buffers • Findings stress the need for targeted policies during systemic shocks We examine whether geographically heterogeneous COVID-19 lockdown restrictions affected household credit risk using a proprietary dataset of over 42,000 personal loans from an Italian financial institution. Exploiting local variation in the intensity of local lockdown restrictions, we find that stricter local restrictions significantly increased the likelihood of borrower default. The effect is heterogeneous across borrower characteristics, being stronger even among high-credit-score borrowers and attenuated for homeowners. Our results are robust to alternative specifications, including geographic exclusions of metropolitan areas. Taken together, our findings show that localized public health interventions had meaningful and uneven financial consequences, with implications for targeted credit risk and social protection policies.