Template-Type: ReDIF-Paper 1.0
Author-Name: Parush  Arora
Author-Name-First: Parush 
Author-Name-Last: Arora
Author-Email: parush.arora@ashoka.edu.in
Author-Workplace-Name: Ashoka University
Author-Name: Derek Tran
Author-Name-First: Derek
Author-Name-Last: Tran
Author-Email: 
Author-Workplace-Name: Economist, Amazon.com Inc.
Title: Central Bank Intervention and Bank Liquidity: Evidence from the Paycheck Protection Program
Abstract: This paper uses loan-level transactions from the Paycheck Protection Program (PPP) to understand how a bank’s decision to borrow funds from the discount window (DW) affected its lending behavior during the COVID-19 crisis. Implementation of the PPP can be seen as an exogenous shock to the liquidity demand for banks, independent of their financial conditions. By exploiting this independence, we find a causal relationship between use of DW and the number of PPP loans extended by large banks but not small banks. While both types used the DW in the absence of a long-term funding source, usage of the DW almost doubled PPP lending for large banks. After the establishment of a long-term funding source, however, this effect was reduced to 69% due to substitution away from the DW. These findings suggest that in the presence of an unexpected liquidity shock, the DW plays a critical role in extending short-term liquidity to the banking sector.
length: 43
Creation-Date: 20241104
Revision-Date: 
Publication-Status: 
File-URL:/www/wwwashokaeduin_628/public/dp/RePEc/ash/wpaper/paper132_0.pdf
File-Format: Application/pdf 
Number: 132
Handle: RePEc:ash:wpaper:132