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Journal Article
Lessons Learned from Small Business Lending During COVID-19: A Case Study of the California Rebuilding Fund
As the COVID-19 pandemic forced California businesses to shut down in March 2020, the fate of small businesses, which often had fewer reserves to draw upon when trying to survive the shutdowns, became particularly concerning. Federal aid measures, including the Paycheck Protection Program (PPP), brought relief to many business owners, but their deployment also confirmed what many small business advocates feared: business owners in the most vulnerable communities and underrepresented business owners often struggled to obtain assistance. At the same time, small business lending capital dried ...
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
Does Scale Matter in Community Bank Performance? Evidence Obtained by Applying Several New Measures of Performance
SUPERSEDES WP16-15 We consider how size matters for banks in three size groups: banks with assets of less than $1 billion (small community banks), banks with assets between $1 billion and $10 billion (large community banks), and banks with assets between $10 billion and $50 billion (midsize banks). Community banks have potential advantages in relationship lending compared with large banks. However, increases in regulatory compliance and technological burdens may have disproportionately increased community banks? costs, raising concerns about small businesses? access to credit. Our evidence ...
Journal Article
Arkansas CDFIs Poised to Scale Small-Business Lending
Arkansas small businesses will see more lending options from CDFIs through a $10 billion federal program called the State Small Business Credit Initiative.
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 ...
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
Is Bigger Necessarily Better in Community Banking?
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 investment in technology, ...
Working Paper
Basic Facts on the Coverage of the Paycheck Protection Program
This paper applies loan-level information from Paycheck Protection Program loans to analyze the coverage of this extraordinary lending program. We show that loans went to a large share of small businesses across most industries in the US, especially to industries that were most negatively impacted by COVID-19 stay-at-home orders. We geocode the loans and then identify that 2021 loans were more concentrated in low- and moderate-income communities, along with census tracts where minority residents are a majority of the population. The growth of nonemployer loans and fintech lending in the ...
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 ...
Working Paper
Credit Availability for Minority Business Owners in an Evolving Credit Environment: Before and During the COVID-19 Pandemic
We apply data from the Federal Reserve’s Small Business Credit Survey from 2016 to 2020 to estimate disparities in access to small business financing through loan denials and discouragement. We find that substantial credit disparities continue to exist despite the growth of fintech lenders, which prior research shows have expanded the set of small businesses receiving credit. Because the pandemic period brought many direct changes to the business and lending environment, we separately analyze the change to lending in 2020. PPP loans represented an unprecedented support for small businesses, ...