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Effect of Compliance Cost on the Supply of Bank Credit to Agriculture: A Differential Approach

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  • Charles B. Moss
  • Dong Hee Suh

Abstract

The supply of credit to agriculture in the United States has been affected by a variety of financial regulations over time. One recent regulatory change is the Dodd‐Frank Act in 2010 that includes the Ability‐to‐Repay rule increasing the operating costs of banks. Although the rule increases the safety of the bank's portfolio, it requires more compliance costs to verify borrower's income status. Given that the verification of the ability to repay increases the costs of lending to all banks, this study examines the effects of bank regulations adding the compliance costs on small or community‐oriented banks. From the framework of multiproduct firm, we estimate the differential input demand and output supply systems to identify the banks' behavioral changes due to the compliance costs. The results indicate that changes in lending and input use have occurred due to the imposition of the compliance costs.

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  • Charles B. Moss & Dong Hee Suh, 2020. "Effect of Compliance Cost on the Supply of Bank Credit to Agriculture: A Differential Approach," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(2), pages 713-726, March.
    • Handle: RePEc:wly:ajagec:v:102:y:2020:i:2:p:713-726
    DOI: 10.1002/ajae.12074
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    References listed on IDEAS

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    1. Ken B. Cyree, 2016. "The Effects Of Regulatory Compliance For Small Banks Around Crisis-Based Regulation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 39(3), pages 215-246, September.
    2. Moss, Charles B. & Livanis, Grigorios T. & Schmitz, Andrew, 2010. "The Effect of Increased Energy Prices on Agriculture: A Differential Supply Approach," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 42(4), pages 1-8, November.
    3. Laitinen, Kenneth & Theil, Henri, 1978. "Supply and demand of the multiproduct firm," European Economic Review, Elsevier, vol. 11(2), pages 107-154, August.
    4. Dong Hee Suh & Charles B. Moss, 2017. "Decompositions of corn price effects: implications for feed grain demand and livestock supply," Agricultural Economics, International Association of Agricultural Economists, vol. 48(4), pages 491-500, July.
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    1. Gaganis, Chrysovalantis & Galariotis, Emilios & Pasiouras, Fotios & Staikouras, Christos, 2020. "Bank profit efficiency and financial consumer protection policies," Journal of Business Research, Elsevier, vol. 118(C), pages 98-116.
    2. Callahan, Scott & Ifft, Jennifer & Michaud, Clayton P., 2022. "The impact of countercyclical farm programs on agricultural land values," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322579, Agricultural and Applied Economics Association.
    3. Cao, Ting & Moss, Charles B., 2020. "Potential Impact of Increased Immigration Cost on State Level Agriculture: A Differential Supply Approach," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304455, Agricultural and Applied Economics Association.
    4. Grout, Travis & Ifft, Jennifer & Malinovskaya, Anna, 2021. "Energy income and farm viability: Evidence from USDA farm survey data," Energy Policy, Elsevier, vol. 155(C).
    5. Onegina, Viktoriya & Vitkovskyi, Yurii, 2020. "Інвестиції Та Земельна Реформа В Сільському Господарстві В Україні," Agricultural and Resource Economics: International Scientific E-Journal, Agricultural and Resource Economics: International Scientific E-Journal, vol. 6(4), December.

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