2024 North American Summer Meeting: June, 2024
Incentivizing Banks as Conduits: Evidence from the Paycheck Protection Program
Yijiang Xu
How does the policy motivate banks to transfer government welfare to small businesses? This study delves into this question within the context of the Paycheck Protection Program (PPP), which assists small businesses affected by the COVID-19 pandemic. Using the bunching estimation approach and leveraging the incentive discontinuity in fee schemes, this paper examines the SBA PPP loan policies by analyzing loan supply elasticities w.r.t. commissions and loan demand elasticities w.r.t. potential interest rates. I find evidence that expectations of loan forgiveness policies influenced borrowers' actions, while commissions had no discernible impact on lender behavior.
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