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- Title
Did prudent risk management practices or weak customer demand reduce PPP lending by the largest banks?
- Authors
Kupiec, Paul H.
- Abstract
Regulatory data shows large differences between large and small banks' response to the Paycheck Protection Program (PPP). Large bank loan originations are smaller than predicted based on operational characteristics and historical lending patterns. One possible explanation is that large banks put greater emphasis on the legal and reputational risks associated with PPP loans because of their prior experience with similar government programmes. A second possibility is that there were systematic differences in large and small bank PPP loan demand. While bank-specific PPP loan demand is unobserved, indirect evidence is inconsistent with the customer demand explanation. On balance, circumstantial evidence favours the hypothesis that large banks took a more cautious approach to PPP lending to minimise the legal and reputational risks that have been endemic to past government loan guarantee programmes.
- Subjects
CORONAVIRUS Aid, Relief &; Economic Security Act (U.S.); GOVERNMENT guaranty of loans; COMMUNITY banks; REPUTATIONAL risk; LOAN originations; BANK loans; SURETYSHIP &; guaranty
- Publication
Journal of Risk Management in Financial Institutions, 2021, Vol 14, Issue 2, p148
- ISSN
1752-8887
- Publication type
Article