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

Posted: 8 Mar 2003

See all articles by James B. Thomson

James B. Thomson

University of Akron

Ben R. Craig

Federal Reserve Bank of Cleveland; Deutsche Bundesbank

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 reasons for the extension of this selective credit subsidy to community banks and thrifts are examined, including the possible 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. We estimate static and dynamic 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

Suggested Citation

Thomson, James B. and Craig, Ben R., Federal Home Loan Bank Lending to Community Banks: Are Targeted Subsidies Desirable?. Journal of Financial Services Research, Vol. 23, No. 1, February 2003. Available at SSRN: https://ssrn.com/abstract=382980

James B. Thomson (Contact Author)

University of Akron ( email )

Akron, OH 44325-4803
United States

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

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