Loan Evergreening: Recent Evidence from the U.S.

Abstract

retains interest or popularity over time. In the context of finance and banking, the term is also used to describe a situation in which banks try to revive a loan that is on the verge of default by granting further loans to the same borrower. As economic activity came to a standstill in early 2020, governments worldwide tried to prevent mass bankruptcies and layoffs by providing firms with subsidized credit. A few months into the COVID-19 pandemic, concerns emerged that banks would “evergreen” loans. Like government programs, evergreening could help stabilize the economy in the short run, but it could also contribute to the creation and survival of less-productive “zombie firms,” tying up resources and inputs that other firms could more productively employ.