Daniel L. Greenwald

John Krainer

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2020-26 | August 1, 2023

Aggregate U.S. bank lending to firms expanded following the outbreak of COVID-19. Using loan-level supervisory data, we show that this expansion was driven by draws on credit lines by large firms. Banks that experienced larger credit line drawdowns restricted term lending more, crowding out credit to smaller firms, which reacted by reducing investment. A structural model calibrated to match our empirical results shows that while credit lines increase total bank credit in bad times, they redistribute credit from firms with high propensities to invest to firms with low propensities to invest, exacerbating the fall in aggregate investment.

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

About the Author
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Pascal Paul is a senior economist in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Pascal Paul