February 2023

Bank Relationships and the Geography of PPP Lending

David Glancy


I study how bank relationships affected the timing and geographic distribution of Paycheck Protection Program (PPP) lending. Half of banks' PPP loans went to borrowers within 2 miles of a branch, mostly driven by relationship lending. Firms near less active lenders shifted to fintechs and other distant lenders, resulting in delays receiving credit but only slightly lower loan volumes. I estimate a structural model to fit the observed relationship between branch distance, bank PPP activity, and origination timing. I find that banks served relationship borrowers 5 to 9 days before other borrowers, an effect in line with reduced-form estimates using a sample of PPP borrowers with previous SBA lending relationships.

Keywords: Banks, credit unions, and other financial institutions, COVID-19, Paycheck Protection Program (PPP), Relationship Lending

DOI: https://doi.org/10.17016/FEDS.2023.014

PDF: Full Paper

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Last Update: February 16, 2023