Motivating Banks to Lend? Credit Spillover Effects of the Main Street Lending Program

The Main Street Lending Program (MSLP)---an emergency lending program for small and mid-sized firms---supported the flow of bank credit during the pandemic by serving as a backstop. Using instrumental variables for identification, we show the MSLP increased banks' willingness to lend more generally outside the program. Participating banks were more likely to renew maturing loans and to originate new loans to both small and large firms, and less likely to tighten lending standards than nonparticipating banks. Despite low overall take-up, the program increased banks' levels of risk tolerance, including by reducing the likelihood of future balance sheet constraints.