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

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)

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Date Written: December 21, 2020

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

Suggested Citation

Li, Lei and Strahan, Philip E., Who Supplies PPP Loans (and Does It Matter)? Banks, Relationships and the COVID Crisis (December 21, 2020). Available at SSRN: https://ssrn.com/abstract=3710929 or http://dx.doi.org/10.2139/ssrn.3710929

Lei Li (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
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United States
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HOME PAGE: http://www2.bc.edu/~strahan

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