The Term Funding Facility: Has It Encouraged Business Lending?

The Reserve Bank of Australia's Term Funding Facility (TFF) was announced in March 2020 as part of a package of policy measures to support the Australian economy. It achieved a key objective of providing banks with three-year low-cost funding and was available for drawdown until 30 June 2021. This paper examines the effectiveness of the TFF in increasing the supply of credit to businesses, which was another one of the objectives of the program. Using bank-level data and a difference-in-differences approach, we find no statistically significant evidence that the TFF increased credit supply to businesses. However, our confidence intervals are wide and there are significant identification challenges involved in disentangling the effects of the TFF from the effects of pandemic-related disruptions and other policy interventions on credit supply and demand. Nonetheless, the TFF provided an assured source of funding at a time of considerable stress in the financial system and lowered banks' funding costs, and any effects on business lending via these channels may not be fully reflected in our results.