Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program
57 Pages Posted: 26 Jan 2021 Last revised: 15 Mar 2021
Date Written: March 15, 2021
We study the effects of the Main Street Lending Program (MSLP)—an emergency program aimed at supporting the flow of credit to small and midsized firms in response to the COVID-19 pandemic—on bank lending. Consistent with the incentives created by the program, we find that participating banks are traditional lenders with larger loan portfolios and have greater funding constraints (lower capital buffers and less deposits). Using a combination of confidential survey and loan-level data from two credit registers, we document that the MSLP had positive spillover effects on banks’ willingness to lend more generally (outside the program) to both large and small firms. Participating banks tightened their lending standards and terms on C&I loans relatively less and were more likely to originate and renew C&I loans than non-participating banks following the introduction of the program. These findings suggest that, despite the modest take-up, the MSLP may have alleviated bank balance sheet constraints and increased risk tolerance, supporting the flow of credit during the pandemic.
Keywords: Main Street Lending Program, Federal Reserve, bank lending, COVID-19 pandemic, emergency lending facilities
JEL Classification: G21, E52, E58, E63
Suggested Citation: Suggested Citation