1. Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis
- Author
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Li, Lei, Strahan, Philip E, and Zhang, Song
- Subjects
040101 forestry ,Economics and Econometrics ,AcademicSubjects/SOC01060 ,050208 finance ,0502 economics and business ,05 social sciences ,0401 agriculture, forestry, and fisheries ,04 agricultural and veterinary sciences ,Business and International Management ,Article ,Finance - Abstract
In March 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from preexisting credit lines in anticipation of cash flow and financial disruptions stemming from the advent of the COVID-19 crisis. The increase in liquidity demands was concentrated at the largest banks, who serve the largest firms. Precrisis financial condition did not constrain large banks’ liquidity supply. Coincident inflows of funds from both the Federal Reserve’s liquidity injection programs and depositors, along with strong preshock bank capital, explain why banks were able to accommodate these liquidity demands. (JEL G21, G28) Received June 7, 2020; editorial decision June 23, 2020 by Editor Isil Erel.
- Published
- 2020