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

Authors

Divya Kirti, International Monetary Fund (IMF)Follow
Maria Soledad Martinez Peria, International Monetary Fund (IMF)Follow
Prachi Mishra, Isaac Center for Public Policy, Ashoka UniversityFollow
Jan Strasky, Organisation for Economic Cooperation and DevelopmentFollow

Document Type

Article

JEL Codes

E52, E58, E62, G21, G28

Abstract

In response to COVID-19, countries frequently adopted multiple types of policies to address the economic and financial effects of the pandemic. This paper analyzes the impact on bank lending of combinations or packages of policies (fiscal, monetary, and prudential) adopted across a broad sample of countries. Using a comprehensive policy announcement–level dataset together with bank-level information, we find that lending grew faster at banks in countries that announced large packages combining fiscal, monetary, and prudential measures (“all-out” packages), especially when uncertainty was high. Both the scope and size of policy packages were important: packages combining all three types of policies, but where only some were large, were relatively less effective in enhancing credit. The impact was stronger among more constrained banks with low equity levels. “all-out” packages also increased liquidity for bank-dependent firms but did not disproportionately benefit unviable firms.

Recommended Citation

Kirti, Divya; Soledad Martinez Peria, Maria; Mishra, Prachi; and Strasky, Jan (2025) "What Policy Combinations Worked?: The Effect of Policy Packages on Bank Lending during COVID-19," Journal of Financial Crises: Vol. 7 : Iss. 3, 50-83.
Available at: https://elischolar.library.yale.edu/journal-of-financial-crises/vol7/iss3/3