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Bank capital, loan activity, and monetary policy: evidence from the FDIC’s Historical Statistics on Banking

Author

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  • Paul E. Orzechowski

    (CUNY – College of Staten Island)

Abstract

This study utilizes the FDIC’s Historical Statistics on Banking from 1966 to 2013 to analyze the long-run relationship between federal funds rate policy, bank capital, and lending at U.S. commercial banks. The empirical analysis uses an autoregressive model to examine loan activity between two different groups of banks with different bank capital structures (high and low capital banks). The results of the study show that commercial loans at high capital banks have a stronger relationship to changes in the federal funds rates than low capital banks. Real estate loans show a slightly stronger negative correlation with federal funds for high capital banks than banks with low capital levels. The change in the portfolio ratio between real estate to commercial loans is negatively related to monetary policy changes.

Suggested Citation

  • Paul E. Orzechowski, 2017. "Bank capital, loan activity, and monetary policy: evidence from the FDIC’s Historical Statistics on Banking," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(2), pages 392-407, April.
    • Handle: RePEc:spr:jecfin:v:41:y:2017:i:2:d:10.1007_s12197-016-9359-5
    DOI: 10.1007/s12197-016-9359-5
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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