Have Banks Caught Corona? Effects of COVID on Lending in the U.S.
64 Pages Posted: 17 Jan 2021 Last revised: 11 Oct 2021
Date Written: September 24, 2020
Exploiting spatial and time variation, we find that banks geographically more exposed to lockdown measures experience an increase in loss provisions and non-performing loans. Exposures to the pandemic itself have a similar, but slightly weaker effect. We observe an increase in small business lending driven by government-guaranteed loans which seem to replace regular loans. Interestingly, lenders more exposed to lockdown measures rely more on government-guaranteed loans – even when controlling for borrower exposure. Finally, we observe a reduction in the number and average amount of syndicated loans for banks more affected by the pandemic, as well as an increase in interest spreads. These findings point to a negative impact of the pandemic on the supply side of finance, to previously unknown side effects of government support, and to the critical role of banks in channeling government support measures to small firms.
Keywords: COVID-19, banking
JEL Classification: G21
Suggested Citation: Suggested Citation