Federal Home Loan Bank Lending to Community Banks: Are Targeted Subsidies Necessary?

22 Pages Posted: 9 Sep 2001 Last revised: 18 Nov 2007

See all articles by Ben R. Craig

Ben R. Craig

Federal Reserve Bank of Cleveland; Deutsche Bundesbank

James B. Thomson

University of Akron

Date Written: August 2001

Abstract

The Gramm-Leach-Bliley Act of 1999 amended the lending authority of the Federal Home Loan Banks to include advances secured by small enterprise loans of community financial institutions. Three possible reasons for the extension of this selective credit subsidy to community banks and thrifts are examined, including the need to: subsidize community depository institutions, stabilize the Federal Home Loan Banks, and address a market failure in rural markets for small enterprise loans.

We empirically investigate whether funding constraints impact the small-business lending decision by rural community banks. Specifically, we estimate two empirical models of small-business lending by community banks. The data reject the hypothesis that access to increased funds will increase the amount of small-business loans made by community banks.

Keywords: small business loans, community banks, government sponsored enterprises

JEL Classification: G2

Suggested Citation

Craig, Ben R. and Thomson, James B., Federal Home Loan Bank Lending to Community Banks: Are Targeted Subsidies Necessary? (August 2001). FRB of Cleveland Working Paper No. 01-12. Available at SSRN: https://ssrn.com/abstract=282410 or http://dx.doi.org/10.2139/ssrn.282410

Ben R. Craig

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101
United States
216-579-2061 (Phone)
216-579-3050 (Fax)

Deutsche Bundesbank

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

James B. Thomson (Contact Author)

University of Akron ( email )

Akron, OH 44325-4803
United States

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