The Impact of the Paycheck Protection Program on the liquidity and financial stability of U.S. Banks
Date
2023-08-08
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
ORCID
0009-0003-3115-5750
Type
Thesis
Degree Level
Masters
Abstract
Under the COVID-19 circumstances, the United States government established the Paycheck Protection Program (PPP) which aimed at assisting small businesses to survive during the pandemic. Banks played a vital role in distributing the available PPP funding to small companies. The study examines the impact of the PPP on banks’ liquidity and financial stability. First, the paper investigates the difference in the financial performance between PPP-participating banks and banks who didn’t engage in the PPP by using the CAMEL rating system. Compared to non-PPP banks, PPP lenders exhibit superior capital adequacy, earning ability and liquidity but inferior asset quality and management efficiency. However, PPP lenders’ capitalization, asset quality, operating efficiency and liquidity became worse during the pandemic. Second, we explore the extent to which the banks used loan sales and securitization to issue PPP loans. According to the probit models, we find that PPP banks are more likely to sell and securitize loans, compared with non-PPP banks. Third, the research examines whether participating in the PPP increases bank lending. The result from the dynamic panel model shows real estate loans and consumer loans decrease, while the supply of commercial and industrial (C&I) loans significantly rises with the growth of PPP lending.
Description
Keywords
Paycheck Protection Program, COVID-19, CAMEL ratios, Bank lending
Citation
Degree
Master of Science (M.Sc.)
Department
Finance
Program
Finance