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A multidisciplinary team of undergraduate students researched specific effects of the Paycheck Protection Program (PPP) on the banking industry and county-level unemployment. The program helped small businesses stay afloat during the pandemic by providing low-interest loans with built-in forgiveness. The team aggregated PPP loan data at the bank and county levels and used regression analysis to answer the following questions: 1) Is greater county-level PPP participation associated with a lower increase in unemployment? Indeed, a 1% increase in the county-level ratio of PPP loans to the endof-2019 county GDP is associated with the unemployment increase between 2019 and 2020 that is lower by. 0.02%. 2) How did participating in the PPP affect banks’ noninterest income and expenses? a. Did banks with greater PPP participation have their noninterest expense increase. Processing many loans on a short notice is costly and drains resources, which may increase a bank’s noninterest expense (e.g., salaries) in the short run. Consistent with this reasoning, a 1% increase in the ratio of PPP loans made by the bank to its pre-pandemic total assets is associated with a 0.02% increase in the bank’s noninterest expense in 2020. b. Did banks with greater PPP participation have their noninterest income decrease? Processing many loans on a short notice may force banks to divert employees and other resources from other services that generate noninterest (i.e., fee) income for the bank. Our findings contrast this prediction: a 1% increase in the ratio of PPP loans made by the bank to its pre-pandemic total assets is associated with a 0.05%increase in the bank’s noninterest income. It may be related to higher fees generated for processing PPP loans. 3) Were banks with higher pre-pandemic interest expense (cost of funds) more likely to take loans from the Federal Reserve’s Payment Protection Program Lending Facility (PPPLF)? The PPPLF had a fixed interest rate of 0.35%, while PPP loans had an interest rate of 1%. We find that banks with the higher pre-pandemic ratios of interest expenses relative to total assets were more likely to resort to PPPLF loans. Based on these analyses and anecdotal evidence that many banks struggled to find resources necessary for an emergency lending program with such short notice, the team has recommended to have a centralized facility next time where both applicants and lenders would register.
Morr, Rudy, "IMPACT OF THE PAYCHECK PROTECTION PROGRAM ON THE BANKING INDUSTRY" (2022). University Research Symposium. 366.