Who CARES? Bank Types, Inclusivity, and Payroll Protection Program Lending During COVID-19

In this AGI webinar, DAAD/AGI Research Fellow Michael Schwan presents an analysis of the role of the U.S. banking system in disbursing economic relief loans as part of the SBA’s Paycheck Protection Program.

The centerpiece of the U.S. response to the employment collapse during the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and its Paycheck Protection Program (PPP), represent the largest federal industrial policy intervention into the economy since the New Deal. Overseen by the Small Business Administration (SBA), the PPP channeled nearly a trillion dollars through the nation’s preexisting privately owned and largely for-profit collection of banks and lending institutions. How might differences in bank or lending institution type shape access to credit for small businesses in poor and/or minority communities? How might variation in bank types shape government capacities to direct credit resources to firms in those communities via programs, like the PPP, that operate through the existing banking system? This seminar presents the first results from a larger transatlantic research project on the comparative political economy of finance during COVID-19 in Germany and the United States. It seeks to shed light on institutional impasses and prospective challenges for inclusive economic policymaking in times of crisis.

Event Summary


During the COVID-19 pandemic, unprecedented amounts of economic relief passed through Congress. In March 2020, Congress passed the first economic relief package, the CARES Act, which was the largest economic stimulus package in U.S. history. It included $2.2 trillion in aid, of which almost $1 trillion was set aside for small and medium-sized businesses (SMEs) hurt by the pandemic. This $1 trillion program is the Paycheck Protection Program (PPP).

The goal of the PPP was for qualified intermediaries (lenders and banks) to provide low-interest loans to cover payroll, mortgage, and lease or utility expenses to help SMEs and their employees weather the pandemic’s economic difficulties. The intermediaries were contracted out and entrusted with certifying eligibility and managing the loans. If the SMEs maintained their staff, the loans would be forgiven.

The PPP ran in three phases of funding. The first phase (April 3 to April 16, 2020) ran for only two weeks before money ran out. The next phase lasted from April 27 to August 8, 2020, and the final phase ran from January 12 to May 31, 2021. Over those three phases, over 11.8 million loans were approved, $799 billion was given out in loans, and 5,467 lenders took part. 


Michael Schwan and his team sought to address if bank types mattered in the implementation of the PPP and if differences in PPP lending between poor and non-poor and minority- and majority-white communities varied by bank type.

During the research they grouped the bank types as:

  • top 50 derivative banks (the 50 biggest banks in the United States),
  • community banks (which are smaller and often more closely tied to the local community),
  • credit unions,
  • community deposit finance institutions (CDFIs, which have federal certification to help low-income individuals and communities),
  • farm credit systems (which assist U.S. agricultural firms), and
  • financial technology firms (aka “Fintechs” which use software to provide banking). 

The research group coded communities by 32,000 ZIP Code Tabulation Areas (ZCTAs).  that better pull together neighborhoods compared to zip codes.


When looking at where various banks disbursed PPP loans as a baseline, community banks were in 94 percent of the ZCTAs, farm credit in 28 percent, credit unions in 53 percent, and the others were each present in about 75 percent of the communities. 

When looking at which lenders operated in poor (poverty rate above 20 percent) and minority (where the share of the population that identifies as white is below 50 percent) neighborhoods, CDFIs and Fintechs were the most common PPP lenders in both poor and minority neighborhoods. About 40 percent of the PPP lending done by CDFIs were in minority neighborhoods, and 30 percent of CDFI lending was in high poverty neighborhoods. Farm credit institutions did the lowest percentage of their PPP lending in minority and poor neighborhoods. 

In the end, CDFIs were the most inclusive type of lender, closely followed by FinTechs. Community banks, farm credit systems, and credit unions were the least inclusive. Big banks were inclusive with minority communities (possibly due to legal requirements) but not in poor communities. 

As they continue the project, the research group will analyze timing effects, different sub-samples of loans to specific industries or borrowers, and political factors. 


  1. The process of contracting out the PPP is discriminatory and reduces inclusivity. The alternative may be more public banks (as seen in Germany). Bank types do matter in how federal assistance was distributed to SMEs through the PPP.
  2. To bring more resources to poor and minority areas, CFFIs and FinTech capacity needs to be increased.
  3. A more streamlined and focused program is needed and a new social policy framework should be created to help in the long-run. Creating an institutional division of labor would make each program more efficient.

Event summary by Halle Foundation/AGI Intern Emily Lent

This event is supported by the DAAD with funds from the Federal Foreign Office.

December 9, 2021


Building a Smarter German-American Partnership