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

75 Pages Posted: 26 Jan 2021 Last revised: 19 Apr 2022

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

Multiple version iconThere are 2 versions of this paper

Date Written: March 14, 2022

Abstract

The Main Street Lending Program (MSLP)---an emergency lending program for small and mid-sized firms---supported the flow of bank credit during the pandemic by serving as a backstop. Using instrumental variables for identification, we show the MSLP increased banks' willingness to lend more generally outside the program. Participating banks were more likely to renew maturing loans and to originate new loans to both small and large firms, and less likely to tighten lending standards than nonparticipating banks. Despite low overall take-up, the program increased banks' levels of risk tolerance, including by reducing the likelihood of future balance sheet constraints.

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 14, 2022). 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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