Working Paper: NBER ID: w28286
Authors: Lei Li; Philip Strahan
Abstract: We analyze bank supply of credit under the Paycheck Protection Program (PPP). The literature emphasizes relationships as a means to improve lender information, which helps banks manage credit risk. Despite imposing no risk, however, PPP supply reflects traditional measures of relationship lending: decreasing in bank size; increasing in prior experience, in commitment lending, and in core deposits. Our results suggest a new benefit of bank relationships, as they help firms access government-subsidized lending. Consistent with this benefit, we show that bank PPP supply, based on the structure of the local banking sector, alleviates increases in unemployment.
Keywords: PPP loans; relationship banking; COVID-19; credit supply; unemployment
JEL Codes: G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| closeness of bank-firm relationships (G21) | access to government-subsidized lending (H81) |
| relationship banks (G21) | supply of PPP credit (E51) |
| areas with more relationship banks (G21) | received more PPP credit (H81) |
| more relationship banks (G21) | smaller increases in unemployment (J65) |
| relationship banks (G21) | better access to PPP loans (H81) |
| relationship lending (G21) | increased PPP lending (H81) |
| broader economic measures (E39) | no significant response to the PPP program (E69) |