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The Demand for Federal Home Loan. Bank Advances by Thrift Institutions: Some Recent Evidence

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  • Elizabeth Mays
  • Edward J. DeMarco

Abstract

This paper develops a model of the demand for Federal Home Loan Bank (FHLB) advances by thrift institutions. It expands on a model developed in Kent [1983] by accounting for net worth in the balance sheet constraint and for borrowing in excess of the “advances limit.” The demand equation is estimated using pooled time‐series and cross‐sectional data for individual thrift institutions over the period 1979–1986. The results indicate that in addition to the traditional use of advances as a source of liquidity, advances are a particularly attractive source of funds for poorly capitalized institutions. Further, thrifts' demand for advances is responsive to the price of advances, mortgage interest rates, the dividend rate on FHLB stock, and rates on substitute sources of funds.

Suggested Citation

  • Elizabeth Mays & Edward J. DeMarco, 1989. "The Demand for Federal Home Loan. Bank Advances by Thrift Institutions: Some Recent Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(3), pages 363-379, September.
    • Handle: RePEc:bla:reesec:v:17:y:1989:i:3:p:363-379
    DOI: 10.1111/1540-6229.00497
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    References listed on IDEAS

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    1. Silber, William L, 1973. "A Model of Federal Home Loan Bank System and Federal National Mortgage Association Behavior," The Review of Economics and Statistics, MIT Press, vol. 55(3), pages 308-320, August.
    2. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    3. Morrissey, Thomas F, 1971. "The Demand for Mortgage Loans and the Concomitant Demand for Home Loan Bank Advances by Savings and Loan Associations," Journal of Finance, American Finance Association, vol. 26(3), pages 687-698, June.
    4. Sealey, C W, Jr, 1980. "Deposit Rate-Setting, Risk Aversion, and the Theory of Depository Financial Intermediaries," Journal of Finance, American Finance Association, vol. 35(5), pages 1139-1154, December.
    5. Goldfeld, Stephen M & Jaffee, Dwight M & Quandt, Richard E, 1980. "A Model of FHLBB Advances: Rationing or Market Clearing?," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 339-347, August.
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    Cited by:

    1. Scott Deacle & Elyas Elyasiani, 2016. "Cost of debt and federal home loan bank funding at U.S. bank and thrift holding companies," Applied Economics, Taylor & Francis Journals, vol. 48(50), pages 4878-4893, October.

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