Who Supplies PPP Loans (and Does It Matter)? Banks, Relationships and the COVID Crisis
45 Pages Posted: 15 Oct 2020 Last revised: 21 Dec 2020
Date Written: December 21, 2020
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: Paycheck Protection Program (PPP), government subsidy, credit supply, relationship banks, unemployment rate
JEL Classification: G21, G01
Suggested Citation: Suggested Citation