Search Results
Speech
Opening remarks at the Community Bankers’ Conference
Remarks at the Community Bankers? Conference, Federal Reserve Bank of New York, New York City.
Working Paper
Relationship Lending: That Ship Has Not Sailed for Community Banks
This study provides direct evidence of the value to banks arising from relationship lending by estimating the market premium placed on banking organizations’ small business loan portfolios. Using data from the small business loan survey contained in the June bank Call Reports, we find that small commercial and industrial (C&I) loans add value to community banks both in absolute terms and relative to the value contributed by larger C&I loans. The value‐enhancing effect of small business loans is observed primarily at small community banks, and it was present during the Great Recession as ...
Report
Allocation and Employment Effect of the Paycheck Protection Program
The Paycheck Protection Program (PPP) was a large and unprecedented small-business support program enacted as a response to the COVID-19 crisis in the United States. The PPP administered almost $800 billion in loans and grants to small businesses through the banking system. However, there is still limited consensus on its overall effect on employment. This paper explores why it is challenging to estimate the effect of the PPP. To do so, we first focus on the timing of the allocation of PPP funds across regions and firms. Counties less affected by COVID-19 and with a larger presence of ...
Working Paper
Is Lending Distance Really Changing? Distance Dynamics and Loan Composition in Small Business Lending
Has information technology improved small businesses' access to credit by hardening the information used in loan underwriting and reducing the importance of proximity to lenders? Previous research, pointing to increasing average lending distances, suggests that it has. But this conclusion can obscure differences across loans and lenders. Using over 20 years of Community Reinvestment Act data on small business lending, we find that while average distances have increased substantially, distances at individual banks remain unchanged. Instead, average distance has increased because a small group ...
Working Paper
Bank Incentives and the Effect of the Paycheck Protection Program
We assess the role of banks in the Paycheck Protection Program (PPP), a large and unprecedented small-business support program instituted as a response to the COVID-19 crisis in the United States. In 2020, the PPP administered more than $525 billion in loans and grants to small businesses through the banking system. First, we provide empirical evidence of heterogeneity in the allocation of PPP loans. Firms that were larger and less affected by the COVID-19 crisis received loans earlier, even in a within-bank analysis. Second, we develop a model of PPP allocation through banks that is ...
Working Paper
The Impact of the Small Business Lending Fund on Community Bank Lending to Small Businesses
Following the financial crisis, total outstanding loans to businesses by commercial banks dropped off substantially. Large loans outstanding began to rebound by the third quarter of 2010 and essentially returned to their previous growth trajectory while small loans outstanding continued to decline. Furthermore, much of the drop in small business loans outstanding was evident at community banks. To address this perceived lack of supply of credit to small businesses, the Small Business Lending Fund (SBLF) was created as part of the 2010 Small Business Jobs Act. The fund was intended to provide ...
Working Paper
Is Bigger Necessarily Better in Community Banking?
SIPERSEDED BY WP 18-11 We investigate the relative performance of publicly traded community banks (those with assets less than $10 billion) versus larger banks (those with assets between $10 billion and $50 billion). A body of research has shown that community banks have potential advantages in relationship lending compared with large banks, although newer research suggests that these advantages may be shrinking. In addition, the burdens placed on community banks by the regulatory reforms mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and the need to increase ...
Working Paper
Ten Days Late and Billions of Dollars Short: The Employment Effects of Delays in Paycheck Protection Program Financing
Delay in the provision of Paycheck Protection Program (PPP) loans due to insufficient initial funding under the CARES Act substantially and persistently reduced employment. Delayed loans increased job losses in May and persistently reduced recalls throughout the summer. The magnitude and heterogeneity of effects suggest significant barriers to obtaining external financing, particularly among small firms. Effects are inequitably distributed: larger among the self-employed, less well paid, less well educated and--importantly for the design of future programs--in very small firms. Our estimates ...
Working Paper
Optimal Allocation of Relief Funds: The Case of the Paycheck Protection Program
The Paycheck Protection Program (PPP) was a large and unprecedented small-business support program that allocated $800 billion in loans and grants to small businesses following the onset of the COVID-19 crisis. This paper explores the optimal allocation of funds across firms and the distortions caused by allocating these funds through banks. We show that it can be optimal to allocate funds to the least or most affected firms depending on the underlying distribution of the shock that firms face, the firms’ financial position, and the total budget available for the program. In the model, as ...
Working Paper
Policy Externalities and Banking Integration
Can policies directed at the banking sector in one jurisdiction spill over and affect real economic activity elsewhere? To investigate this question, I exploit changes in tax rates on bank profits across U.S. states. Banks respond by reallocating small-business lending to otherwise unaffected states. Moreover, counties in non-tax-changing states that have more exposure to treated banks experience greater changes in lending, which in turn impacts local employment. The findings demonstrate that policies aimed at the banking sector in one jurisdiction can impose externalities on other regions. ...