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Who Supplies PPP Loans (And Does it Matter)? Banks, Relationships and the COVID Crisis

Author

Listed:
  • Lei Li
  • Philip Strahan

Abstract

We analyze bank supply of credit under the Paycheck Protection Program (PPP). The literature emphasizes relationships as a means to improve lender information, which helps banks manage credit risk. Despite imposing no risk, however, PPP supply reflects traditional measures of relationship lending: decreasing in bank size; increasing in prior experience, in commitment lending, and in core deposits. Our results suggest a new benefit of bank relationships, as they help firms access government-subsidized lending. Consistent with this benefit, we show that bank PPP supply, based on the structure of the local banking sector, alleviates increases in unemployment.

Suggested Citation

  • Lei Li & Philip Strahan, 2020. "Who Supplies PPP Loans (And Does it Matter)? Banks, Relationships and the COVID Crisis," NBER Working Papers 28286, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28286
    Note: CF
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    References listed on IDEAS

    as
    1. Lei Li & Philip E Strahan & Song Zhang, 2020. "Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 472-500.
    2. Alexander W. Bartik & Zoe B. Cullen & Edward L. Glaeser & Michael Luca & Christopher T. Stanton & Adi Sunderam, 2020. "When Should Public Programs be Privately Administered? Theory and Evidence from the Paycheck Protection Program," NBER Working Papers 27623, National Bureau of Economic Research, Inc.
    3. Lei Li & Philip E Strahan & Song Zhang, 0. "Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 472-500.
    4. Isil Erel & Jack Liebersohn, 2020. "Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program," NBER Working Papers 27659, National Bureau of Economic Research, Inc.
    5. 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.
    6. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    7. Humphries, John Eric & Neilson, Christopher A. & Ulyssea, Gabriel, 2020. "Information frictions and access to the Paycheck Protection Program," Journal of Public Economics, Elsevier, vol. 190(C).
    8. Viral V Acharya & Sascha Steffen, 2020. "The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 9(3), pages 430-471.
    9. Patrick Bolton & Xavier Freixas & Leonardo Gambacorta & Paolo Emilio Mistrulli, 2016. "Relationship and Transaction Lending in a Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2643-2676.
    10. Jeremy C. Stein, 2002. "Information Production and Capital Allocation: Decentralized versus Hierarchical Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1891-1921, October.
    11. Daniel L. Greenwald & John Krainer & Pascal Paul, 2025. "The Credit Line Channel," Journal of Finance, American Finance Association, vol. 80(6), pages 3137-3183, December.
    12. Gustavo Joaquim & Felipe Netto, 2021. "Bank Incentives and the Effect of the Paycheck Protection Program," Working Papers 21-15, Federal Reserve Bank of Boston.
    13. Viral V Acharya & Sascha Steffen, 0. "The Risk of Being a Fallen Angel and the Corporate Dash for Cash in the Midst of COVID," Review of Corporate Finance Studies, Oxford University Press, vol. 9(3), pages 430-471.
    14. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, February.
    15. Tetyana Balyuk & Nagpurnanand R. Prabhala & Manju Puri, 2020. "Indirect Costs of Government Aid and Intermediary Supply Effects: Lessons From the Paycheck Protection Program," NBER Working Papers 28114, National Bureau of Economic Research, Inc.
    16. Vlado Kysucky & Lars Norden, 2016. "The Benefits of Relationship Lending in a Cross-Country Context: A Meta-Analysis," Management Science, INFORMS, vol. 62(1), pages 90-110, January.
    17. Granja, João & Makridis, Christos & Yannelis, Constantine & Zwick, Eric, 2022. "Did the paycheck protection program hit the target?," Journal of Financial Economics, Elsevier, vol. 145(3), pages 725-761.
    18. Chodorow-Reich, Gabriel & Darmouni, Olivier & Luck, Stephan & Plosser, Matthew, 2022. "Bank liquidity provision across the firm size distribution," Journal of Financial Economics, Elsevier, vol. 144(3), pages 908-932.
    19. Erel, Isil & Liebersohn, Jack, 2020. "Does FinTech Substitute for Banks? Evidence from the Paycheck Protection Program," Working Paper Series 2020-16, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    20. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    21. Santiago Barraza & Martín Rossi & Timothy J. Yeager, 2020. "The Short-Term Effect of the Paycheck Protection Program on Unemployment," Working Papers 144, Universidad de San Andres, Departamento de Economia, revised Aug 2020.
    22. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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