Abstract
This paper investigates the impact of deposit shocks on banks’ balance sheet. The empirical strategy exploits as a natural experiment the lottery jackpot winners of Powerball and Mega Millions. Using hand-collected data, I find that the banks that receive the jackpot winner shock experience a large increase in deposits and total lending. The estimate of the elasticity of small business lending with respect to deposits is 0.876. I control for local credit demand by comparing loan origination of banks in the treatment group within a given CBSA in a given year to banks in the control group in the same CBSA-year. Consistent with frictions that originate from adverse selection, the set of small and medium-sized banks and those with the most illiquid balance sheets significantly increase loan origination after the winners’ shocks.
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