Working Papers

2020-26 | November 2020


The Credit Line Channel


Aggregate bank lending to firms expands following a number of adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening. Using loan-level supervisory data, we show that these dynamics are driven by draws on credit lines by large firms. Banks that experience larger drawdowns restrict term lending more—crowding out credit of smaller firms. Using a structural model, we show that credit lines are necessary to reproduce the flow of credit toward less constrained firms after adverse shocks. While credit lines increase total credit growth, their redistributive effects exacerbate the fall in investment.

Download PDF (pdf, 4.41 mb)

Article Citation

Greenwald, Daniel L, John Krainer, and Pascal Paul. 2020. "The Credit Line Channel," Federal Reserve Bank of San Francisco Working Paper 2020-26. Available at