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Author:Sharma, Padma 

Working Paper
Government Loan Guarantees during a Crisis: The Effect of the PPP on Bank Lending and Profitability

We study bank responses to the Paycheck Protection Program (PPP) and its effects on lender balance sheets and profitability. To address the endogeneity between bank decisions and balance sheet effects, we develop a Bayesian joint model that examines the decision to participate, the intensity of participation, and ultimate balance sheet outcomes. Overall, lenders were driven by risk-aversion and funding capacity rather than profitability in their decision to participate and the intensity of their participation. Indeed, with greater participation intensity, banks experienced sizable growth in ...
Research Working Paper , Paper RWP 21-03

Journal Article
The Macroeconomic Fallout of Shutting Down the Banking System

During the 2008–09 financial crisis, the U.S. government arranged bailouts of major banks to prevent a suspension of bank deposits, where banks cease paying checks and refuse depositors’ requests to withdraw funds. Although these bailouts likely helped firms and households continue to make payments, they have been debated due to potential moral hazard concerns as well as the high cost to taxpayers. Assessing the costs and benefits of preventing deposit suspensions is difficult, as nationwide bank suspensions have not occurred since the Great Depression.To circumvent this challenge, Qian ...
Economic Review , Volume v.105 , Issue no.2 , Pages 31-45

Working Paper
Payments Crises and Consequences

Banking-system shutdowns during contractions scar economies. Four times in the lastforty years, governors suspended payments from state-insured depository institutions. Suspensionsof payments in Nebraska (1983), Ohio (1985), and Maryland (1985), which wereshort and occurred during expansions, had little measurable impact on macroeconomic aggregates.Rhode Island’s payments crisis (1991), which was prolonged and occurred duringa recession, lengthened and deepened the downturn. Unemployment increased. Outputdeclined, possibly permanently relative to what might have been. We document these ...
Research Working Paper , Paper RWP 20-10

Working Paper
Assessing Regulatory Responses to Banking Crises

During banking crises, regulators must decide between bailouts or liquidations, neither of which are publicly popular. However, making a comprehensive assessment of regulators requires examining all their decisions against their dual objectives of preserving financial stability and discouraging moral hazard. I develop a Bayesian latent class model to assess regulators on these competing objectives and evaluate banking and savings and loan (S&L) regulators during the 1980s crises. I find that the banking authority (FDIC) conformed to these objectives whereas the S&L regulator (FSLIC), which ...
Research Working Paper , Paper RWP 22-04

Journal Article
Dampened Demand for Bank Loans Reflects Supply Bottlenecks, Not a Weakness in the Recovery

Throughout the pandemic, banks have experienced weak business loan demand. Although banks expectdemand to grow as the worst of the pandemic wanes and the economy recovers, loan demand mayremain weak in some industries due to persistent supply chain bottlenecks.
Economic Bulletin , Issue April 22, 2022 , Pages 4

Journal Article
PPP Raised Community Bank Revenue but Lowered Profitability

Community banks have played an outsized role in the Paycheck Protection Program (PPP), disbursing 37 percent of all PPP loans despite holding only 18 percent of outstanding bank loans. Although participation boosted community banks’ revenue by supporting asset and interest income growth, it appears to have lowered their profitability, at least initially: low interest rates and deferred fee collection on PPP loans reduced banks’ earning margins.
Economic Bulletin

Working Paper
Risk-Shifting, Regulation, and Government Assistance

This paper examines an episode when policy response to a financial crisis effectively incentivized financial institutions to reallocate their portfolios toward safe assets. Following a shift to a regime of enhanced regulation and scaled-down public assistance during the savings and loan crisis in 1989, I find that thrifts with a high probability of failure increased their composition of safe assets relative to thrifts with a low probability of failure. The findings also show a shift to safe assets among stock thrifts relative to mutual thrifts, thereby providing evidence of risk-shifting from ...
Research Working Paper , Paper RWP 19-10



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