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Farm Lender Asset and Funding Decisions: A Micro-Model Application

Author

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  • Ananth Rao
  • Glenn D. Pederson
  • Michael D. Boehlje

Abstract

A model of loan asset allocation and funding decisions is developed and applied to a regional Farm Credit Bank (FCB) using time-series data from 1970 to 1990. Estimated loan rate equations indicate that expected loan prepayment and default are significant sources of risk for which the FCB charged interest rate premiums. Theoretically, and practically, these rate premiums impart a positive slope to the bank's loan supply schedule. Loan supply elasticities and interest rate premiums are estimated. Long-term loan volume is responsive to changing loan interest rates, while short-term loan volume is not.

Suggested Citation

  • Ananth Rao & Glenn D. Pederson & Michael D. Boehlje, 1994. "Farm Lender Asset and Funding Decisions: A Micro-Model Application," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 16(3), pages 399-412.
    • Handle: RePEc:oup:revage:v:16:y:1994:i:3:p:399-412.
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    File URL: http://hdl.handle.net/10.2307/1349699
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    Cited by:

    1. Tseng, Jauling, 1996. "Farmer-borrowers' selection of short- and intermediate-term loan contracts: traditional lenders versus nontraditional lenders," ISU General Staff Papers 1996010108000012129, Iowa State University, Department of Economics.

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