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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.

Suggested Citation

  • Curry, Timothy J. & Fissel, Gary S. & Ramirez, Carlos D., 2008. "The impact of bank supervision on loan growth," The North American Journal of Economics and Finance, Elsevier, vol. 19(2), pages 113-134, August.
  • Handle: RePEc:eee:ecofin:v:19:y:2008:i:2:p:113-134

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    References listed on IDEAS

    1. Peek, Joe & Rosengren, Eric S & Tootell, Geoffrey M B, 2003. " Identifying the Macroeconomic Effect of Loan Supply Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 931-946, December.
    2. 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.
    3. Peek, Joe & Rosengren, Eric, 1995. "The Capital Crunch: Neither a Borrower nor a Lender Be," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 625-638, August.
    4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    5. Allen N. Berger & Margaret K. Kyle & Joseph M. Scalise, 2001. "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?," NBER Chapters,in: Prudential Supervision: What Works and What Doesn't, pages 301-356 National Bureau of Economic Research, Inc.
    6. John Wagster, 1999. "The Basle Accord of 1988 and the International Credit Crunch of 1989–1992," Journal of Financial Services Research, Springer;Western Finance Association, vol. 15(2), pages 123-143, March.
    7. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
    8. 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.
    9. 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.
    10. Stephen 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.
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    Cited by:

    1. Haubrich, Joseph G. & Balasubramanyan, Lakshmi, 2014. "What do we know about regional banks? An exploratory analysis," Working Paper 1316, Federal Reserve Bank of Cleveland.
    2. Quijano, Margot, 2013. "Financial fragility, uninsured deposits, and the cost of debt," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 159-175.
    3. Howard Bodenhorn, 2016. "Two Centuries of Finance and Growth in the United States, 1790-1980," Working Papers id:11352, eSocialSciences.
    4. Gaul, Lewis & Palvia, Ajay, 2013. "Are regulatory management evaluations informative about bank accounting returns and risk?," Journal of Economics and Business, Elsevier, vol. 66(C), pages 1-21.
    5. Hirtle, Beverly & Kovner, Anna & Plosser, Matthew, 2016. "The impact of supervision on bank performance," Staff Reports 768, Federal Reserve Bank of New York, revised 01 Jul 2016.
    6. da Silva, Marcos Soares & Divino, Jose Angelo, 2013. "The role of banking regulation in an economy under credit risk and liquidity shock," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 266-281.
    7. Munasib Abdul & Roy Devesh & Chen Xing, 2014. "Financial Reforms and International Trade," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(4), pages 1-45, October.
    8. repec:eee:spacre:v:17:y:2014:i:1:p:58-70 is not listed on IDEAS
    9. Bassett, William F. & Marsh, Blake, 2014. "Assessing Targeted Macroprudential Financial Regulation: The Case of the 2006 Commercial Real Estate Guidance for Banks," Finance and Economics Discussion Series 2014-49, Board of Governors of the Federal Reserve System (U.S.), revised 01 Jul 2016.
    10. Niu, Jijun, 2016. "Loan growth and bank valuations," The Quarterly Review of Economics and Finance, Elsevier, vol. 61(C), pages 185-191.
    11. Alanis, Emmanuel & Beladi, Hamid & Quijano, Margot, 2015. "Uninsured deposits as a monitoring device: Their impact on bond yields of banks," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 77-88.
    12. repec:ebl:ecbull:eb-17-00473 is not listed on IDEAS
    13. repec:eee:spacre:v:19:y:2016:i:2:p:227-238 is not listed on IDEAS
    14. Bassett, William F. & Lee, Seung Jung & Spiller, Thomas Popeck, 2015. "Estimating changes in supervisory standards and their economic effects," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 21-43.
    15. Elizabeth K. Kiser & Robin A. Prager & Jason R. Scott, 2016. "Supervisory Ratings and Bank Lending to Small Businesses During the Financial Crisis and Great Recession," Journal of Financial Services Research, Springer;Western Finance Association, vol. 50(2), pages 163-186, October.
    16. repec:eee:finsta:v:30:y:2017:i:c:p:209-228 is not listed on IDEAS
    17. Agur, Itai, 2012. "Credit rationing when banks are funding constrained," The North American Journal of Economics and Finance, Elsevier, vol. 23(2), pages 220-227.

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