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Impact of the Basel III bank regulation on US agricultural lending

Author

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  • Kevin Nooree Kim
  • Ani L. Katchova

Abstract

Purpose - Following the recent global financial crisis, US regulatory agencies issued laws to implement the Basel III accords to ensure the resiliency of the US banking sector. Theories predict that enhanced regulations may alter credit issuance of the regulated banks due to increased capital requirements, but the direction of changes might not be straightforward especially with respect to the agricultural loans. A decrease in credit availability from banks might pose a serious problem for farmers who rely on bank credit especially during economic recessions. The paper aims to discuss these issues. Design/methodology/approach - In this study, the impact of Basel III regulatory framework implementation on agricultural lending in the USA is examined. Using panel data of FDIC-insured banks from 2008 to 2017, the agricultural loan volume and growth rates are examined for agricultural banks and all US banks. Findings - The results show that agricultural loan growth rates have slowed down, but the amount of agricultural loan volume issuance still remained positive. More detailed examination finds that regulated agricultural banks have decreased both the agricultural loan volume and their loan exposure to the agricultural sector, showing a possible sign of credit crunch. Originality/value - This study examines whether the implementation of the Basel III regulation has resulted in changes in agricultural loan issuance by US banks as predicted by the lending channel theory.

Suggested Citation

  • Kevin Nooree Kim & Ani L. Katchova, 2020. "Impact of the Basel III bank regulation on US agricultural lending," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 80(3), pages 321-337, January.
    • Handle: RePEc:eme:afrpps:afr-11-2019-0124
    DOI: 10.1108/AFR-11-2019-0124
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    Cited by:

    1. Kevin N. Kim & Ani L. Katchova, 2022. "Agricultural bank acquisitions and postacquisition performance: An examination of the role of shared knowledge," Agribusiness, John Wiley & Sons, Ltd., vol. 38(4), pages 743-770, October.
    2. Felicetta Carillo & Francesco Licciardo & Eugenio Corazza, 2021. "Investments financing at farm level: A regional assessment using FADN data," Economia agro-alimentare, FrancoAngeli Editore, vol. 23(3), pages 1-24.
    3. Retselisitsoe I. Thamae & Nicholas M. Odhiambo, 2022. "The impact of bank regulation on bank lending: a review of international literature," Journal of Banking Regulation, Palgrave Macmillan, vol. 23(4), pages 405-418, December.

    More about this item

    Keywords

    Bank lending; Capital requirements; Agricultural bank; Basel accords; Farm credit; G21; G28; Q14;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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