Analysis of data on bank-specific average PPP loan size produces results that are inconsistent with a loan demand explanation. Absent good measures of PPP loan demand, the source of the observed differences in bank PPP loan activity cannot be definitively identified using bank regulatory data alone.

This paper develops a model of bank behavior that focuses on the interaction between the incentives created by fixed-rate deposit insurance and a bank's choice of its loan portfolio and its market-traded financial instruments. The model is used to analyze the consequences of the Federal Reserve...