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

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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
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    References listed on IDEAS

    as
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    2. Patrick Bolton & Xavier Freixas & Leonardo Gambacorta & Paolo Emilio Mistrulli, 2016. "Relationship and Transaction Lending in a Crisis," Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2643-2676.
    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. 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.
    5. 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.
    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.
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    10. 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.
    11. 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.
    12. 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.
    13. João Granja & Christos Makridis & Constantine Yannelis & Eric Zwick, 2020. "Did the Paycheck Protection Program Hit the Target?," Working Papers 2020-52_Revised, Becker Friedman Institute for Research In Economics.
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    15. Alexander W. Bartik & Zoe B. Cullen & Edward L. Glaeser & Michael Luca & Christopher T. Stanton & Adi Sunderam, 2020. "The Targeting and Impact of Paycheck Protection Program Loans to Small Businesses," NBER Working Papers 27623, National Bureau of Economic Research, Inc.
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    17. 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).
    18. Viral V Acharya & Sascha Steffen, 2020. "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.
    19. 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.
    20. 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.
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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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