Share these talks and lectures with your colleaguesInvite colleagues
Did prudent risk management practices or weak customer demand reduce PPP lending by the largest banks?
Regulatory data shows large differences between large and small banks’ response to the Paycheck Protection Program (PPP). Large bank loan originations are smaller than predicted based on operational characteristics and historical lending patterns. One possible explanation is that large banks put greater emphasis on the legal and reputational risks associated with PPP loans because of their prior experience with similar government programmes. A second possibility is that there were systematic differences in large and small bank PPP loan demand. While bank-specific PPP loan demand is unobserved, indirect evidence is inconsistent with the customer demand explanation. On balance, circumstantial evidence favours the hypothesis that large banks took a more cautious approach to PPP lending to minimise the legal and reputational risks that have been endemic to past government loan guarantee programmes.
The full article is available to institutions that have subscribed to the journal
Paul H. Kupiec is a resident scholar at the American Enterprise Institute. He has served as the director of the Center for Financial Research at the Federal Deposit Insurance Corporation and chairman of the Research Task Force of the Basel Committee on Banking Supervision. In addition, he has held senior positions at The International Monetary Fund, JP Morgan, FreddieMac and the Federal Reserve Board.
CitationKupiec, Paul H. (2021, March 1). Did prudent risk management practices or weak customer demand reduce PPP lending by the largest banks?. In the Journal of Risk Management in Financial Institutions, Volume 14, Issue 2.