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The corporate “dash for cash” and banks’ pullback from risk-taking Image In spring 2020, stay-at-home policies aimed at containing the spread of the coronavirus led to a sharp decline in the revenues of nonfinancial firms. To shore up cash positions and ride out the crisis, firms approached their banks and drew down on pre-committed lines of credit. As a result, between early March and the end of April, the banking system was hit by a tidal wave of credit line drawdowns (figure 1), estimated at about half a trillion USD (Li et al. 2020). Banks were able to withstand the unprecedented credit demand, successfully providing liquidity to the real sector during a time of stress. However, they also curtailed new loan originations and tightened lending standards by an extent not seen since the 2008 financial crisis (figure 2).

Robertf engleRoberts fletcherMarianne bertrandCamelia minoiuPhilipe strahanMichael lucaMatthewc plosserEthan yehChristophert stantonRefinitiv dealscanEdwardl glaeserOlivier darmouniExchange commissionCredit line drawdowns affect bank lendingInternational monetary fundBank liquidity provision