Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program
64 Pages Posted: 26 Jan 2021 Last revised: 9 Jan 2024
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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
Date Written: January 6, 2024
Abstract
We study the effects of the Main Street Lending Program (MSLP), a novel emergency facility deployed by the Federal Reserve during the Covid-19 pandemic, on the provision of bank credit to nonfinancial firms. Using instrumental variables for identification, we show the MSLP increased banks' willingness to lend more generally outside the program, both on the extensive and intensive margins. Participating banks were relatively more likely to originate new loans, increase loan volumes, and reduce loan spreads. Spillovers were stronger for ex-ante riskier firms and for lower-capital banks, suggesting the program increased risk-taking and mitigated financial constraints at banks.
Keywords: Main Street Lending Program, Federal Reserve, bank lending, U.S. credit register, emergency lending facilities
JEL Classification: G21, E52, E58, E63
Suggested Citation: Suggested Citation