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The impact of bank supervision on loan growth

  • Curry, Timothy J.
  • Fissel, Gary S.
  • Ramirez, Carlos D.

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 sub-periods: (1) 1985-1993 (which covers the credit crunch period) and (2) 1994-2004 (which covers the sustained recovery period). For the first period, 1985-1993, 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.

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File URL: http://www.sciencedirect.com/science/article/B6W5T-4S98V38-1/2/fb9ce854500558f6814d1327629521ab
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Article provided by Elsevier in its journal The North American Journal of Economics and Finance.

Volume (Year): 19 (2008)
Issue (Month): 2 (August)
Pages: 113-134

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Handle: RePEc:eee:ecofin:v:19:y:2008:i:2:p:113-134
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620163

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  1. Curry, Timothy J. & Fissel, Gary S. & Hanweck, Gerald A., 2008. "Is there cyclical bias in bank holding company risk ratings?," Journal of Banking & Finance, Elsevier, vol. 32(7), pages 1297-1309, July.
  2. Joe Peek & Eric Rosengren, 1991. "The capital crunch: neither a borrower nor a lender be," Working Papers 91-4, Federal Reserve Bank of Boston.
  3. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  4. Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 2000. "Identifying the macroeconomic effect of loan supply shocks," Working Papers 00-2, Federal Reserve Bank of Boston.
  5. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers W00/19, Institute for Fiscal Studies.
  6. Allen N. Berger & Margaret K. Kyle & Joseph M. Scalise, 2000. "Did U.S. bank supervisors get tougher during the credit crunch? Did they get easier during the banking boom? Did it matter to bank lending?," Finance and Economics Discussion Series 2000-39, Board of Governors of the Federal Reserve System (U.S.).
  7. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  8. DeYoung, Robert, et al, 2001. "The Information Content of Bank Exam Ratings and Subordinated Debt Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(4), pages 900-925, November.
  9. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  10. John Wagster, 1999. "The Basle Accord of 1988 and the International Credit Crunch of 1989–1992," Journal of Financial Services Research, Springer, vol. 15(2), pages 123-143, March.
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