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Time is money: Real effects of relationship lending in a crisis

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  • James, Christopher
  • Lu, Jing
  • Sun, Yangfan

Abstract

We provide evidence that small banks responded faster to Paycheck Protection Program (PPP) loan requests and lent more intensively to small businesses than larger banks. Using community bank pre-pandemic share of deposits/assets as an instrument for the intensity of PPP lending, we find a negative and significant relationship between county level bankruptcy filings and PPP lending per small business. Overall, our findings suggest that community banks remain an important conduit for small business credit particularly during crises when a rapid response is required.

Suggested Citation

  • James, Christopher & Lu, Jing & Sun, Yangfan, 2021. "Time is money: Real effects of relationship lending in a crisis," Journal of Banking & Finance, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002399
    DOI: 10.1016/j.jbankfin.2021.106283
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    Cited by:

    1. Lopez, Jose A. & Spiegel, Mark M., 2023. "Small business lending under the PPP and PPPLF programs," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    2. Berger, Allen N. & Demirgüç-Kunt, Asli, 2021. "Banking research in the time of COVID-19," Journal of Financial Stability, Elsevier, vol. 57(C).
    3. Sriya Anbil & Mark A. Carlson & Mary-Frances Styczynski, 2021. "The Effect of the PPPLF on PPP Lending by Commercial Banks," Finance and Economics Discussion Series 2021-030, Board of Governors of the Federal Reserve System (U.S.).
    4. Aktaev, Nurken E. & Bannova, K.A., 2022. "Mathematical modeling of probability distribution of money by means of potential formation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 595(C).
    5. Allen N. Berger & Onesime Epouhe & Raluca Roman, 2021. "A Tale of Two Bailouts: Effects of TARP and PPP on Subprime Consumer Debt," Working Papers 21-32, Federal Reserve Bank of Philadelphia.
    6. Eduardo Minuci & Scott Schuh, 2022. "Are West Virginia Banks Unique?," Working Papers 22-03, Department of Economics, West Virginia University.
    7. Anbil, Sriya & Carlson, Mark & Styczynski, Mary-Frances, 2023. "The effect of the Federal Reserve’s lending facility on PPP lending by commercial banks," Journal of Financial Intermediation, Elsevier, vol. 55(C).
    8. Desi Volker, 2021. "COVID Response: The Paycheck Protection Program Liquidity Facility," Staff Reports 978, Federal Reserve Bank of New York.

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    More about this item

    Keywords

    Community bank; Small business; Lending; SBA Lending;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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