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

Abstract

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