The Effect of Bank Supervision on Loan Growth

FDIC Center for Financial Resarch Working Paper No. 2006-12

44 Pages Posted: 5 Nov 2006

See all articles by Timothy J. Curry

Timothy J. Curry

U.S. Federal Deposit Insurance Corporation (FDIC) - Division of Research and Statistics

Gary S. Fissel

U.S. Federal Deposit Insurance Corporation (FDIC) - Division of Insurance and Research

Carlos D. Ramirez

George Mason University - Department of Economics

Date Written: September 2006

Abstract

This paper quantifies the short-term and long-term impact of bank supervision (measured using CAMEL composite and component ratings) on different categories of loan growth: (a) commercial and industrial loans, b) consumer loans, and (c) real estate loans. For each of these categories, we perform dynamic loan growth equations at the state level augmented by the inclusion of CAMEL ratings for all banks in the state, after controlling for banking and economic conditions. We perform these regressions for two distinct subperiods: (1) 1985 through 1993 (which covers the credit crunch period), and (2) 1994 through 2004 (which covers the sustained recovery period). For the first period, 1985 to 1993, we find that out of the three loan categories considered, business lending is the most sensitive to changes in CAMEL ratings (both the composite and the components), although the other loan categories also show some sensitivity. Overall, however, we find little evidence suggesting that the effects of changes in any of the components of CAMEL ratings differ systematically from the effects of changes in the composite CAMEL. For the second period, we find little evidence that changes in CAMEL ratings (the composite or its components) had any systematic effect on loan growth for any of the loan categories considered.

Keywords: Loan growth equations, CAMEL downgrades, banking sector conditions

JEL Classification: E44, G21

Suggested Citation

Curry, Timothy J. and Fissel, Gary S. and Ramirez, Carlos D., The Effect of Bank Supervision on Loan Growth (September 2006). FDIC Center for Financial Resarch Working Paper No. 2006-12, Available at SSRN: https://ssrn.com/abstract=942299 or http://dx.doi.org/10.2139/ssrn.942299

Timothy J. Curry (Contact Author)

U.S. Federal Deposit Insurance Corporation (FDIC) - Division of Research and Statistics ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States
202-898-7372 (Phone)

Gary S. Fissel

U.S. Federal Deposit Insurance Corporation (FDIC) - Division of Insurance and Research ( email )

550 Seventeenth Street, NW
Washington, DC 20057
United States
202-898-3949 (Phone)

Carlos D. Ramirez

George Mason University - Department of Economics ( email )

4400 University Drive
Enterprise Hall MSN 3G4
Fairfax, VA 22030
United States
703-993-1130 (Phone)
703-993-1133 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
338
Abstract Views
1,836
Rank
162,048
PlumX Metrics