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

57 Pages Posted: 26 Jan 2021 Last revised: 15 Mar 2021

See all articles by Camelia Minoiu

Camelia Minoiu

Board of Governors of the Federal Reserve System

Rebecca Zarutskie

Board of Governors of the Federal Reserve System

Andrei Zlate

Board of Governors of the Federal Reserve System

Date Written: March 15, 2021

Abstract

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

Minoiu, Camelia and Zarutskie, Rebecca and Zlate, Andrei, Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program (March 15, 2021). Available at SSRN: https://ssrn.com/abstract=3773242 or http://dx.doi.org/10.2139/ssrn.3773242

Camelia Minoiu (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Rebecca Zarutskie

Board of Governors of the Federal Reserve System ( email )

20th Street and C Streets NW
Mailstop 155-B
Washington, DC 20551
United States
202-452-5292 (Phone)

Andrei Zlate

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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