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

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  • Li, Lei
  • Strahan, Philip E.

Abstract

We analyze the 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, the PPP supply reflects traditional measures of relationship lending: decreasing in bank size and increasing in prior experience, commitment lending, and core deposits. Our results suggest a new benefit of bank relationships: They help firms access government-subsidized lending. Consistent with this benefit, we show that the bank PPP supply, based on the structure of the local banking sector, alleviates increases in unemployment.

Suggested Citation

  • Li, Lei & Strahan, Philip E., 2021. "Who Supplies PPP Loans (and Does It Matter)? Banks, Relationships, and the COVID Crisis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(7), pages 2411-2438, November.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:7:p:2411-2438_5
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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. Honda, Tomohito & Hosono, Kaoru & Miyakawa, Daisuke & Ono, Arito & Uesugi, Iichiro, 2023. "Determinants and effects of the use of COVID-19 business support programs in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 67(C).
    3. Huneeus, Federico & Kaboski, Joseph & Larrain, Mauricio & Schmukler, Sergio L. & Vera, Mario, 2022. "The Distribution of Crisis Credit: Effects on Firm Indebtedness and Aggregate Risk," CEPR Discussion Papers 17061, C.E.P.R. Discussion Papers.
    4. Li, Xiang, 2022. "The role of state-owned banks in crises: Evidence from German banks during COVID-19," IWH Discussion Papers 6/2022, Halle Institute for Economic Research (IWH), revised 2022.
    5. Gustavo Joaquim & J. Christina Wang, 2022. "What Do 25 Million Records of Small Businesses Say about the Effects of the PPP?," Working Papers 22-23, Federal Reserve Bank of Boston.
    6. Staples, Aaron J. & Krumel, Thomas P. Jr., 2022. "The Paycheck Protection Program & Small Business Performance: Evidence from Craft Breweries," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322484, Agricultural and Applied Economics Association.
    7. Keil, Jan & Ongena, Steven, 2024. "The demise of branch banking – Technology, consolidation, bank fragility," Journal of Banking & Finance, Elsevier, vol. 158(C).
    8. 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).
    9. Barbakadze, I., 2023. "With a Little Help from My Friend: Political Connections and Allocation of COVID-19 Aid," Cambridge Working Papers in Economics 2355, Faculty of Economics, University of Cambridge.
    10. Aaron J. Staples & Thomas P. Krumel, 2023. "The Paycheck Protection Program and small business performance: Evidence from craft breweries," Small Business Economics, Springer, vol. 61(3), pages 931-956, October.
    11. Allen N. Berger & Maryann P. Feldman & W. Scott Langford & Raluca Roman, 2023. ""Let Us Put Our Moneys Together": Minority-Owned Banks and Resilience to Crises," Working Papers 23-13, Federal Reserve Bank of Philadelphia.
    12. Vu, Phuong Thi Thu & Huynh, Nhan & Phan, Hoa & Hoang, Hanh, 2023. "Financial earthquakes and aftershocks: From Brexit to Russia-Ukraine conflict and the stability of European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    13. Marsh, W. Blake & Sharma, Padma, 2024. "Loan guarantees in a crisis: An antidote to a credit crunch?," Journal of Financial Stability, Elsevier, vol. 72(C).
    14. Gustavo Joaquim & Felipe Netto & José Renato Haas Ornelas, 2022. "Government Banks and Interventions in Credit Markets," Working Papers 22-20, Federal Reserve Bank of Boston.
    15. Doniger, Cynthia L. & Kay, Benjamin, 2023. "Long-lived employment effects of delays in emergency financing for small businesses," Journal of Monetary Economics, Elsevier, vol. 140(C), pages 78-91.
    16. David P. Glancy, 2023. "Bank Relationships and the Geography of PPP Lending," Finance and Economics Discussion Series 2023-014, Board of Governors of the Federal Reserve System (U.S.).
    17. Beck, Thorsten & Keil, Jan, 2022. "Have banks caught corona? Effects of COVID on lending in the U.S," Journal of Corporate Finance, Elsevier, vol. 72(C).
    18. John M. Griffin & Samuel Kruger & Prateek Mahajan, 2023. "Did FinTech Lenders Facilitate PPP Fraud?," Journal of Finance, American Finance Association, vol. 78(3), pages 1777-1827, June.
    19. 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).
    20. Sergey Chernenko & David S. Scharfstein, 2022. "Racial Disparities in the Paycheck Protection Program," NBER Working Papers 29748, National Bureau of Economic Research, Inc.

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