We study the effect of governments’ fiscal support on banks’ loan loss provisioning during the COVID-19 pandemic. In addition, we decompose fiscal support into direct support and liquidity support to examine the effect of different types of support measures on banks’ loan loss provisioning. Direct support generally refers to cash transfers, tax reliefs, and tax deferrals, while liquidity support generally refers to government-backed loans and equity injections. We find that direct support reduced banks’ loan portfolio risk whereas liquidity support did not. Moreover, we find the effect goes beyond a macroeconomic stabilization effect, suggesting that direct support directly contributed to mitigating banks’ loan portfolio risk during the pandemic. Our results are robust to controlling for other policy interventions, alternative model specifications, and an instrumental variable approach. We further discuss the policy implications of our analysis.

Global Systemically Important Banks (GSIBs) face additional capital requirements and closer supervision. We study how closer supervision affects corporate credit supply and investigate consequences for firms. GSIB designations reduce lending on average by 5.9% but to risky firms by 7.2%. The consequences are lower asset, sales, and investment growth, especially among high-risk borrowers, and reduced R&D expenditures among all GSIB-dependent firms. Closer supervision therefore reduces banks' risk-taking but has potentially unintended implications for firms' ability to finance innovation, which seems to crucially depend on bank credit. The supervision-induced effects are larger than those attributed to GSIB-specific capital surcharges.

We investigate whether and how the environmental consciousness (greenness for short) of firms and banks is reflected in the pricing of bank credit. Using a large international sample of syndicated loans over the period 2011–2019, we find that green banks indeed reward firms for being green in the form of cheaper loans—however, only after the ratification of the Paris Agreement in 2015. Such loans are also more likely term loans, with fewer covenants and reflect firms' project choices. Thus, we find that environmental attitudes matter “when green meets green.”