Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis

Lei Li, Philip E. Strahan, Song Zhang

NBER Working Paper No. 27256
Issued in May 2020
NBER Program(s):Corporate Finance

In March of 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from pre-existing credit lines and loan commitments in anticipation of cash flow disruptions from the economic shutdown designed to contain the COVID-19 crisis. The increase in liquidity demands was concentrated at the largest banks, who serve the largest firms. Pre-crisis financial condition did not limit banks’ liquidity supply. Coincident inflows of funds to banks from both the Federal Reserve’s liquidity injection programs and from depositors, along with strong pre-shock bank capital, explain why banks were able to accommodate these liquidity demands.

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Document Object Identifier (DOI): 10.3386/w27256

Published: Lei Li & Philip E Strahan & Song Zhang, 2020. "Banks as Lenders of First Resort: Evidence from the COVID-19 Crisis," The Review of Corporate Finance Studies, vol 9(3), pages 472-500.