Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program

Abstract

We study the effects of the Main Street Lending Program (MSLP)---an innovative emergency facility deployed by the Federal Reserve during the Covid-19 pandemic---on the provision of bank credit to nonfinancial firms. Using instrumental variables for identification, we show the MSLP increased banks' willingness to lend more generally outside the program, both on the extensive and intensive margins. Participating banks were relatively more likely to originate new loans, increase loan volumes, and reduce loan spreads. Spillovers were stronger for ex-ante riskier firms and for lower-capital banks, suggesting the program increased risk-taking and mitigated capital constraints at participating banks.  

Keywords: Main Street Lending Program, Federal Reserve, bank lending, U.S. credit register, emergency lending facilities JEL Codes: G21, E52, E58, E63

JEL Classification: G21, E52, E58, E63