COVID-19 and Bank Loan Supply

Abstract

The severity of the initial COVID-19 outbreak varied substantially across the United States. We use this variation to document that banks with a higher exposure to COVID-19 experienced a significant increase in their deposits - mainly in insured deposits. This suggests that households accumulated their savings in banks at the onset of the pandemic. The deposit increase can be attributed to a decrease in overall spending due to the reduction in mobility. This holds only for banks located in counties with a lower increase in unemployment. We document that, in response to the increase in their deposits, banks increased their loan supply during this period. They honored the loan commitment drawdowns and they issued new term loans.

Keywords: COVID-19, Bank lending, Flight-to-safety

JEL Classification: G21, E51