Abstract
The Great Recession has been more of a bank governance issue. In the COVID-19 crisis, the liquidity needs of firms have been the immediate problem due to lockdowns and banks have responded to these with the support of government and central bank programs. Our paper is the first evaluating the impact of the geographic exposure to COVID-19 on bank stability and performance in such a liquidity-backed environment. We find that bank stability and performance worsen by COVID-19 exposure. The liquidity injections seem to be only helpful for banks with higher equity capital capacity that were able to increase loan supply. We also find that banks operating in locations with high-density black populations suffer from COVID-19 exposure while their peers do not, potentially hinting at differences in accessibility to credit expansion.
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