Working Papers

2020-26 | November 2021


The Credit Line Channel

Author(s): Daniel L. Greenwald, John Krainer, and Pascal Paul

Aggregate U.S. bank lending to firms expands following several 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 during the COVID-19 crisis restrict term lending more, crowding out credit to smaller firms. A structural model indicates that credit lines are central to reproducing this flow of credit toward less constrained firms. While credit lines increase total credit growth in bad times, their redistributive effects can exacerbate the fall in investment.

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Article Citation

Greenwald, Daniel L, John Krainer, and Pascal Paul. 2021. "The Credit Line Channel," Federal Reserve Bank of San Francisco Working Paper 2020-26. Available at