Fiscal Stimulus and Commercial Bank Lending Under Covid-19

50 Pages Posted: 22 Apr 2022

See all articles by Joshua Aizenman

Joshua Aizenman

University of Southern California - Department of Economics

Yothin Jinjarak

Victoria University of Wellington - Te Herenga Waka - School of Economics & Finance

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department

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Abstract

We investigate the implications of extra-normal government spending under COVID-19 for commercial bank lending growth between 2019Q4 and 2020Q4 in a sample of 3000 banks from 71 countries. We control for pre-pandemic structural factors, bank characteristics and government debt. To address the likely endogeneity of government assistance under the pandemic, we instrument for extra-normal spending using disparities in pre-existing national political characteristics for identification. While higher government spending was associated with higher commercial bank lending, higher public debt going into the crisis weakened the expansionary effects of higher spending on bank lending at economically and statistically significant levels. Moreover, this sensitivity is higher among weaker banks, suggesting that bank lending responses to government spending under COVID-19 reflected the perceived implications of such spending for government assistance of the banking sector going forward. Our results are robust to a variety of sensitivity analyses, including perturbations in specification, sample, and estimation methodology.

Keywords: G21, E62, F34, H30

Suggested Citation

Aizenman, Joshua and Jinjarak, Yothin and Spiegel, Mark M., Fiscal Stimulus and Commercial Bank Lending Under Covid-19. Available at SSRN: https://ssrn.com/abstract=4083026 or http://dx.doi.org/10.2139/ssrn.4083026

Joshua Aizenman (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall 300
Los Angeles, CA 90089
United States

Yothin Jinjarak

Victoria University of Wellington - Te Herenga Waka - School of Economics & Finance ( email )

P.O. Box 600
Wellington 6001
New Zealand

Mark M. Spiegel

Federal Reserve Bank of San Francisco - Economic Research Department ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3184 (Phone)
415-974-2168 (Fax)

HOME PAGE: http://www.frbsf.org/economics/economists/mspiegel.html

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