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Who Supplies PPP Loans (and Does It Matter)? Banks, Relationships, and the COVID Crisis

Published online by Cambridge University Press:  05 July 2021

Lei Li  and
Philip E. Strahan
Lei Li*
Affiliation:
Federal Reserve Board of Governors
Philip E. Strahan
Affiliation:
Boston College and National Bureau of Economic Researchstrahan@bc.edu
*
lei.li@frb.gov (corresponding author)
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Abstract

We analyze the 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, the PPP supply reflects traditional measures of relationship lending: decreasing in bank size and increasing in prior experience, commitment lending, and core deposits. Our results suggest a new benefit of bank relationships: They help firms access government-subsidized lending. Consistent with this benefit, we show that the bank PPP supply, based on the structure of the local banking sector, alleviates increases in unemployment.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 7: JFQA Symposium on the Consequences of the COVID-19 Pandemic for Firms and Capital Markets , November 2021 , pp. 2411 - 2438
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

We thank Olivier Darmouni, Jarrad Harford, Lawrence Schmidt, and James Vickrey for comments, as well as seminar participants at Boston College, the Federal Reserve Board of Governors, the University of Minnesota, and Southern Methodist University and participants at the Tel Aviv University (TAU) Conference on Financial Intermediation during the COVID-19 Crisis, the 2021 Journal of Financial and Quantitative Analysis (JFQA) Symposium on COVID-19, the 2021 Financial Intermediation Research Society (FIRS) Conference, and the 2021 New York Fed/New York University (NYU) Stern Conference on Financial Intermediation. The opinions in this article do not represent those of the Federal Reserve Board of Governors or any other affiliate of the Federal Reserve System.

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