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The Impact of Bank Branching Deregulations on the U.S. Agricultural Sector

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  • Amy M G Kandilov
  • Ivan T Kandilov

Abstract

We demonstrate how states that lifted restrictions on interstate bank expansions, thereby improving access to cheaper credit, experienced increased farm sales and net farm income. In our empirical analysis, we use nationwide county-level data from 1970 through 2001 and a difference-in-differences econometric framework, exploiting only within-state variation in banking deregulation, to distinguish the effect of an increase in bank competition from potential confounding factors. By including region-by-year fixed effects in our econometric equation, we compare changes in farm sales and expenditures in states that lift restrictions on interstate banking to changes in states that do not lift such restrictions within the same census region. Our estimates indicate that county-level farm sales increase by about 3.4% and county-level net farm income rises by $1.57 million (in 1982 dollars) after a state deregulates its banking sector by allowing interstate bank expansion. We also find evidence that farm expenditures, in particular expenditures on feed, fuel, machine and equipment rental, as well as interest payments, grew as a result of the banking deregulation. The positive impacts on farm sales, net income, and interest payments are larger in metropolitan counties than in rural counties, consistent with the notion that interstate bank entry following deregulation was concentrated in larger metropolitan markets, leading to a greater reduction in the cost of credit in those areas.

Suggested Citation

  • Amy M G Kandilov & Ivan T Kandilov, 2018. "The Impact of Bank Branching Deregulations on the U.S. Agricultural Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(1), pages 73-90.
    • Handle: RePEc:oup:ajagec:v:100:y:2018:i:1:p:73-90.
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    File URL: http://hdl.handle.net/10.1093/ajae/aax059
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    Citations

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    Cited by:

    1. Guthrie, Graeme, 2024. "Farm debt and the over-exploitation of natural capital," Resource and Energy Economics, Elsevier, vol. 77(C).
    2. 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.
    3. Anders Van Sandt & Craig Wesley Carpenter & Charles M. Tolbert, 2023. "Decomposing local bank impacts with demand thresholds," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 70(2), pages 333-352, April.
    4. Ty Kreitman & Todd Kuethe & David B. Oppedahl & Francisco Scott, 2022. "The Supply and Demand of Agricultural Loans," Research Working Paper RWP 22-06, Federal Reserve Bank of Kansas City.
    5. Fiechter, Chad M. & Miller, Noah J. & Ifft, Jennifer & Nelson, Blaine, 2024. "Farm Characteristics and Cost of Borrowing," 2024 Annual Meeting, July 28-30, New Orleans, LA 343924, Agricultural and Applied Economics Association.
    6. Ty Kreitman & Todd Kuethe & David B. Oppedahl & Francisco Scott, 2022. "The Supply and Demand of Agricultural Loans," Research Working Paper RWP 22-06, Federal Reserve Bank of Kansas City.
    7. Eric C. Davis & Ani L. Katchova, 2020. "The Impact of Bank Deregulations on Farm Financial Stress and Stability," Sustainability, MDPI, vol. 12(4), pages 1-14, February.
    8. Chad Fiechter & Todd Kuethe & David B. Oppedahl, 2021. "Perceived Competition in Agricultural Lending: Stylized Facts and an Agenda for Future Research," Working Paper Series WP-2021-16, Federal Reserve Bank of Chicago.
    9. Bretford Griffin & Valentina Hartarska & Denis Nadolnyak, 2020. "Credit Constraints and Beginning Farmers’ Production in the U.S.: Evidence from Propensity Score Matching with Principal Component Clustering," Sustainability, MDPI, vol. 12(14), pages 1-12, July.

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