Bank Liquidity Provision Across the Firm Size Distribution

89 Pages Posted: 11 Oct 2020 Last revised: 26 Apr 2021

See all articles by Gabriel Chodorow-Reich

Gabriel Chodorow-Reich

Harvard University Department of Economics

Olivier Darmouni

Columbia University - Columbia Business School

Stephan Luck

Federal Reserve Bank of New York

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York

Multiple version iconThere are 3 versions of this paper

Date Written: October 1, 2020

Abstract

We use supervisory loan-level data to document that small firms (SMEs) obtain shorter maturity credit lines than large firms; post more collateral; have higher utilization rates; and pay higher spreads. We rationalize these facts as the equilibrium outcome of a trade-off between lender commitment and discretion. Using the COVID recession, we test the prediction that SMEs are subject to greater lender discretion. Consistent with this hypothesis, SMEs did not drawdown in contrast to large firms, even in response to similar demand shocks. PPP recipients reduced non-PPP loan balances, indicating the program bolstered their liquidity and alleviated the shortfall.

Keywords: Liquidity Provision, Macro-Finance, Credit, Financial Constraints, Loan Terms, Banking, Credit Lines, COVID-19

JEL Classification: G00, G20, G30

Suggested Citation

Chodorow-Reich, Gabriel and Darmouni, Olivier and Luck, Stephan and Plosser, Matthew C., Bank Liquidity Provision Across the Firm Size Distribution (October 1, 2020). Available at SSRN: https://ssrn.com/abstract=3702725 or http://dx.doi.org/10.2139/ssrn.3702725

Gabriel Chodorow-Reich

Harvard University Department of Economics ( email )

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HOME PAGE: http://scholar.harvard.edu/chodorow-reich

Olivier Darmouni

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Stephan Luck (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Matthew C. Plosser

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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