The Credit Line Channel

By Daniel L. Greenwald, John R. Krainer, Pascal Paul. Federal Reserve Bank of San Francisco, Working Paper Series, 2020

113 citations recorded by the source corpus.

Aggregate U.S. bank lending to firms expanded following the outbreak of COVID‐19. Using loan‐level supervisory data, we show that this expansion was driven by draws on credit lines by large firms. Banks that experienced larger credit line drawdowns restricted term lending more, crowding out credit to smaller firms, which reacted by reducing investment. A structural model calibrated to match our empirical results shows that while credit lines increase total bank credit in bad times, they redistribute credit from firms with high propensities to invest to firms with low propensities to invest, exacerbating the decrease in aggregate investment.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c986c92227e2f1fedeff5b7faa0421e0c597bcd2

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Citations in the corpus

COVID-19 and SME Failures (2020, background): “, 2017) and to new credit lines during crises (Greenwald et al., 2020; Chodorow-Reich et al., 2020).”
Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1 (2020, unknown): “For example, Greenwald et al. (2020) argue, and show, that credit lines are central to the transmission of macroeconomic shocks to firm credit, at both the aggregate level and in the cross-section.”
The impact of COVID-19 pandemic on bank lending around the world (2021, unknown): “By showing that total bank credit growth is lower, our results are consistent with the findings of Greenwald et al. (2020), in that the increase in loan supply from existing credit lines was not sufficient to”