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Home | Events Archive | Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program

Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program

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    November 17, 2021
    15:00 - 18:00

Abstract: We study the effects of the Main Street Lending Program (MSLP)—an emergency lending program aimed at supporting the flow of credit to small and mid-sized firms during the COVID-19 crisis—on bank lending to businesses. Using instrumental variables for identification and multiple loan-level and survey data sources, we document that the MSLP increased banks’ willingness to lend more generally outside the program to both large and small firms. Following the introduction of the program, participating banks were more likely to renew maturing loans and to extend new loans, as well as less likely to tighten standards on business loans than nonparticipating banks. Additional evidence suggests that the MSLP, despite low take-up, supported the flow of bank credit during the pandemic by serving as a backstop to the bank loan market and by increasing banks’ levels of risk tolerance in the face of uncertainty