What Policy Combinations Worked? The Effect of Policy Packages on Bank Lending during COVID-19

IMF Working Papers, February 3, 2023

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Canonical URL: What Policy Combinations Worked? The Effect of Policy Packages on Bank Lending during COVID-19

Authors: Divya Kirti, Prachi Mishra, Jan Strasky
Date: February 3, 2023
Focus: Impact of fiscal, monetary, and prudential policies during the COVID-19 pandemic on bank lending across a broad sample of countries.
Approach: Combine a comprehensive announcement-level dataset of policy actions with bank and firm-level information to analyze effectiveness of different types of policies and their combinations (packages).

Different types of policies were introduced together; accounting for policy combinations, or packages, is crucial.
Lending grew faster at banks in countries that announced packages combining fiscal, monetary, and prudential measures relative to those that relied on some, but not all, policy dimensions.
Within packages including all three types of policy measures, banks in countries with more and larger measures saw faster loan growth.
The impact was larger among more constrained banks with low equity levels.
Large packages combining fiscal, monetary and prudential policies also increased liquidity for bank-dependent firms, but did not disproportionately benefit unviable firms.

Subject: Bank credit, COVID-19, Credit, Financial institutions, Fiscal policy, Health, Loans, Money
Keywords: Bank credit, bank lending, COVID-19, Credit, Global, IMF working paper research Department, Loans, policy combination, policy effectiveness, policy package, policy packages, prudential policy