Researcher ORCID Identifier

0009-0008-8092-0160

Graduation Year

2024

Date of Submission

12-2023

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Professor Angela Vossmeyer, Ph.D.

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Terms of Use for work posted in Scholarship@Claremont.

Rights Information

© 2023 Kara A Hagler

Abstract

Due to the hardships that small businesses were facing from the onset of COVID-19 in March 2020, the government created the Payment Protection Program (PPP). This program used banks as the initial lenders for small business loans to facilitate loans from the government to small businesses. In this article, I study how participation in the PPP lending program contributes to the Bank Distress of 2023 by using a bank-level quarterly panel data set from 2019-2023. Estimation of difference-in-difference specifications reveals banks that opted into the PPP program experienced an increase in held-to-maturity securities relative to non PPP banks. The mechanism for these differences in asset holdings is most likely due to growth in depositors associated with PPP loans. As PPP banks gained more depositors, they invested many of these funds in treasury securities, which were either marked-to-market or available for sale securities. Marked-to-market securities lost a substantial amount of value from the monetary tightening which began in March 2022. Many banks were inclined to shift these marked-to-market securities into held-to-maturity securities. Subsequently, in March 2023, due to a high amount of uninsured leverage and a loss in marked-to-market securities, Silicon Valley Bank crashed with a few other banks soon following. Ultimately, this paper links this Bank Distress of 2023 back to the government stimulus from the Payment Protection Program.

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