Working Paper

Bank Relationships and the Geography of PPP Lending

Abstract: I study how bank relationships affected the timing and geographic distribution of Paycheck Protection Program (PPP) lending. Half of banks' PPP loans went to borrowers within 2 miles of a branch, mostly driven by relationship lending. Firms near less active lenders shifted to fintechs and other distant lenders, resulting in delays receiving credit but only slightly lower loan volumes. I estimate a structural model to fit the observed relationship between branch distance, bank PPP activity, and origination timing. I find that banks served relationship borrowers 5 to 9 days before other borrowers, an effect in line with reduced-form estimates using a sample of PPP borrowers with previous SBA lending relationships.

Keywords: Banks, credit unions, and other financial institutions; COVID-19; Paycheck Protection Program (PPP); Relationship Lending;

JEL Classification: G38; G21; G28; H25;

https://doi.org/10.17016/FEDS.2023.014

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2023-02-16

Number: 2023-014