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

Lei Li | Zendy; Philip E. Strahan | Zendy; Song Zhang | Zendy

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

Author(s) -

Lei Li,

Philip E. Strahan,

Song Zhang

Publication year - 2020

Publication title -

the review of corporate finance studies

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.292

H-Index - 14

eISSN - 2046-9136

pISSN - 2046-9128

DOI - 10.1093/rcfs/cfaa009

Subject(s) - market liquidity , financial system , business , liquidity crisis , financial crisis , covid-19 , capital (architecture) , funding liquidity , cash flow , finance , monetary economics , economics , medicine , history , disease , archaeology , pathology , infectious disease (medical specialty) , macroeconomics

In March 2020, banks faced the largest increase in liquidity demands ever observed. Firms drew funds on a massive scale from preexisting credit lines in anticipation of cash flow and financial disruptions stemming from the advent of the COVID-19 crisis. The increase in liquidity demands was concentrated at the largest banks, who serve the largest firms. Precrisis financial condition did not constrain large banks’ liquidity supply. Coincident inflows of funds from both the Federal Reserve’s liquidity injection programs and depositors, along with strong preshock bank capital, explain why banks were able to accommodate these liquidity demands. (JEL G21, G28) Received June 7, 2020; editorial decision June 23, 2020 by Editor Isil Erel.

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