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What Policy Combinations Worked?: The Effect of Policy Packages on Bank Lending during COVID-19

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Abstract

In response to COVID-19, countries frequently adopted multiple types of policies to address the economic and financial effects of the pandemic. This paper analyzes the impact on bank lending of combinations or packages of policies (fiscal, monetary, and prudential) adopted across a broad sample of countries. Using a comprehensive policy announcement-level dataset together with bank-level information, we find that lending grew faster at banks in countries that announced large packages combining fiscal, monetary, and prudential measures ("all-out" packages), especially when uncertainty was high. Both the scope and size of policy packages were important: packages combining all three types of policies, but where only some were large, were relatively less effective in enhancing credit. The impact was stronger among more constrained banks with low equity levels. "all-out" packages also increased liquidity for bank-dependent firms but did not disproportionately benefit unviable firms.

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  • Kirti, Divya & Soledad Martinez Peria, Maria & Mishra, Prachi & Strasky, Jan, 2025. "What Policy Combinations Worked?: The Effect of Policy Packages on Bank Lending during COVID-19," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 7(3), pages 50-83, April.
    • Handle: RePEc:ysm:ypfsfc:v:7:y:2025:i:3:p:50-83
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    2. Bergant, Katharina & Forbes, Kristin, 2023. "Policy packages and policy space: Lessons from COVID-19☆," European Economic Review, Elsevier, vol. 158(C).

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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