Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis

42 Pages Posted: 21 May 2020 Last revised: 8 Jun 2020

See all articles by Lei Li

Lei Li

Board of Governors of the Federal Reserve System

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Song Zhang

Boston College - Department of Finance

Date Written: June 6, 2020

Abstract

In March of 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from pre-existing credit lines and loan commitments in anticipation of cash flow disruptions from the economic shutdown designed to contain the COVID-19 crisis. The increase in liquidity demands was concentrated at the largest banks, who serve the largest firms. Pre-crisis financial condition did not limit banks’ liquidity supply. Coincident inflows of funds to banks from both the Federal Reserve’s liquidity injection programs and from depositors, along with strong pre-shock bank capital, explain why banks were able to accommodate these liquidity demands.

Keywords: COVID-19, bank liquidity supply, loan commitments

JEL Classification: G21

Suggested Citation

Li, Lei and Strahan, Philip E. and Zhang, Song, Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis (June 6, 2020). Available at SSRN: https://ssrn.com/abstract=3606279 or http://dx.doi.org/10.2139/ssrn.3606279

Lei Li

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Philip E. Strahan (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Song Zhang

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

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