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This time is really different: The multiplier effect of the Paycheck Protection Program (PPP) on small business bank loans

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  • Karakaplan, Mustafa U.

Abstract

In response to the COVID-19 crisis, the U.S. government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020, creating the Paycheck Protection Program (PPP), among others, to aid small businesses and their employees. Most PPP loans were administered by commercial banks in return for fees, and the banks bore little monitoring costs or risks, since PPP loans were forgivable by the government. I analyze if PPP loans of up to $1 million were net substitutes or complements for conventional small business loans of the same size for the PPP-issuing banks. The $1 million upper bound roughly corresponds to credits to the smallest firms that are often financially constrained. Using Call Report data through 2020:Q4, I find significant net complementarities. An additional dollar of PPP credit of up to $1 million had multiplier effects on conventional loans to the smallest firms of about an extra dollar.

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  • Karakaplan, Mustafa U., 2021. "This time is really different: The multiplier effect of the Paycheck Protection Program (PPP) on small business bank loans," Journal of Banking & Finance, Elsevier, vol. 133(C).
    • Handle: RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621001825
    DOI: 10.1016/j.jbankfin.2021.106223
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    Cited by:

    1. Berger, Allen N. & Demirgüç-Kunt, Asli, 2021. "Banking research in the time of COVID-19," Journal of Financial Stability, Elsevier, vol. 57(C).
    2. Jack Mueller & Mark M. Spiegel, 2023. "Small Business Lending and the Paycheck Protection Program," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2023(10), pages 1-6, April.
    3. 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).
    4. Galina Hale & John Leer & Fernanda Nechio, 2022. "Inflationary Effects of Fiscal Support to Households and Firms," Working Paper Series 2023-02, Federal Reserve Bank of San Francisco.
    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. Hale, Galina & Leer, John & Nechio, Fernanda, 2022. "Inflationary Effects of Fiscal Support to Households and Firms," Santa Cruz Department of Economics, Working Paper Series qt8qt1t3t4, Department of Economics, UC Santa Cruz.
    7. 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.
    8. Matthew Schaffer & Nimrod Segev, 2023. "Quantitative Easing, Bank Lending, and Aggregate Fluctuations," Bank of Israel Working Papers 2023.01, Bank of Israel.
    9. 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.
    10. Feng, Jingyu & Yuan, Ying & Jiang, Mingxuan, 2024. "Are stablecoins better safe havens or hedges against global stock markets than other assets? Comparative analysis during the COVID-19 pandemic," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 275-301.

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    More about this item

    Keywords

    Banks; Small business loans; CARES act; Paycheck Protection Program; PPP; COVID-19;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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