Thus, PPP loans might be expected to substitute for conventional bank loans for many small businesses, resulting in a reduction in such conventional loans. ![]() 1ĭue to the design of the CARES Act, a firm that qualifies for a PPP loan would almost surely find it preferable to a conventional small business bank loan, since the forgivability of PPP loans would more than offset the additional paperwork costs in virtually all circumstances. Small Business Administration (SBA) established the Paycheck Protection Program (PPP) to provide loans to help struggling businesses and their employees through banks and other financial institutions. government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act at the end of March 2020, providing a massive $2.2 trillion lifeline to the economy. As a result of a powerful bipartisan effort, the U.S. government officials quickly came to realize that the widespread transformation in social behavior would lead to failing businesses, high unemployment, and a dramatic economic slowdown, and that the country would need an urgent stimulation to prevent an even deeper economic and social depression. (2021) find that commercial borrowers with banking relationships fare worse than other borrowers during the COVID-19 crisis–a sharp departure from the findings in the literature for both normal times (e.g., Kysucky and Norden (2016)) and prior crises (e.g., Bolton et al. Thus, while the banks faced threats, they were from a completely different origin than in other crises, so we may expect different responses, and there is some extant evidence on this issue. ![]() banks had ample liquidity and equity in early January 2020, and as soon as the virus hit the world, the structure of the banking industry allowed their workforce to quickly adopt the new normal of working remotely.Īlthough the crisis did not originate from the banks, it still threatened them because a weak real economy can result in significant loan losses and other problems that can quickly reduce the equity capital of banks, which are generally very highly leveraged. was so robust that the Federal Reserve decided to roll back its massive balance sheet and started to increase interest rates. ![]() In fact, prior to the crisis, the financial picture in the U.S. (2021), the virus created public health shocks and government activity restriction shocks that harmed the real economy and were unrelated to any financial markets or institutions. The crisis caused by the COVID-19 pandemic, however, can be argued to be really different and may have vastly different consequences. Other crisis studies, such as Demirgüç-Kunt and Detragiache (1998), Berger and Bouwman (2013) and Laeven and Valencia (2020), classify some fundamentally different crisis categories based on their origins, such as crises in exchange markets, capital markets, or banking markets. In “This Time is Different: Eight Centuries of Financial Folly,” Reinhart and Rogoff (2009) analyze the history of crises and suggest that crises have more in common in terms of default than they differ from one another.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |