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Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis

Author

Listed:
  • Lei Li
  • Philip E. Strahan
  • Song Zhang

Abstract

In March of 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from pre-existing credit lines and loan commitments in anticipation of cash flow disruptions from the economic shutdown designed to contain the COVID-19 crisis. The increase in liquidity demands was concentrated at the largest banks, who serve the largest firms. Pre-crisis financial condition did not limit banks’ liquidity supply. Coincident inflows of funds to banks from both the Federal Reserve’s liquidity injection programs and from depositors, along with strong pre-shock bank capital, explain why banks were able to accommodate these liquidity demands.

Suggested Citation

  • Lei Li & Philip E. Strahan & Song Zhang, 2020. "Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis," NBER Working Papers 27256, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27256
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    References listed on IDEAS

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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