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Small Commercial Banks and the Federal Home Loan Bank System

Author

Listed:
  • Robert N. Collender

    (Rural Business and Development Policy Branch, Food and Rural Economics Division, Economic Research Service, U.S. Department of Agriculture, Washington, DC, rnc@ers.usda.gov)

  • Julie A. Frizell

    (Rural Business and Development Policy Branch, Food and Rural Economics Division, Economic Research Service, U.S. Department of Agriculture, Washington, DC, julie_frizell@hotmail.com)

Abstract

Increased competition within the financial services industry has raised concerns about the ability of small banks to adequately fund local rural development. To address these concerns, the Gramm-Leach-Bliley Act of 1999 broadened small-bank access to Federal Home Loan Bank (FHLB) financing. Statistical analyses indicate that the following factors were significantly associated with the decisions of small banks headquartered in nonmetropolitan counties to obtain FHLB membership: bank size, affiliation with a bank holding company, exposure to interest rate risk, loan portfolio quality, liquidity pressure, dividend rates on FHLB stock, and binding membership requirements related to residential real estate-related assets. Many, but not all, of these factors were also significantly associated with the membership decisions of small banks headquartered in metropolitan counties. The decisions of both nonmetropolitan and metropolitan banks to use FHLB funding is significantly related to interest rate risk exposure, liquidity pressure, and net interest margins. Neither population trend nor rural county type variables are consistently significant in explaining either which small banks join FHLBs or which member banks borrow from FHLBs.

Suggested Citation

  • Robert N. Collender & Julie A. Frizell, 2002. "Small Commercial Banks and the Federal Home Loan Bank System," International Regional Science Review, , vol. 25(3), pages 279-303, July.
    • Handle: RePEc:sae:inrsre:v:25:y:2002:i:3:p:279-303
    DOI: 10.1177/016176025003004
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    References listed on IDEAS

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    1. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
    2. Collender, Robert N., 1997. "Would More Rural Bank Access to Nonlocal Funds Provide Public Benefits?," Agricultural Information Bulletins 33669, United States Department of Agriculture, Economic Research Service.
    3. Lisa K. Ashley & Elijah Brewer & Nancy E. Vincent, 1998. "Access to FHLBank advances and the performance of thrift institutions," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 22(Q II), pages 33-52.
    4. William R. Keeton, 1998. "Are rural banks facing increased funding pressures? : evidence from Tenth District states," Economic Review, Federal Reserve Bank of Kansas City, vol. 83(Q II), pages 43-67.
    5. Ron J. Feldman & Jason Schmidt, 2000. "Financial modernization, the FHLB and agricultural banks," Fedgazette, Federal Reserve Bank of Minneapolis, vol. 12(Oct), pages 16-17.
    6. Houston, Joel F. & James, Christopher, 1998. "Do bank internal capital markets promote lending?," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 899-918, August.
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    Cited by:

    1. Rosalind L. Bennett & Mark D. Vaughan & Timothy J. Yeager, 2005. "Should the FDIC worry about the FHLB? The impact of Federal Home Loan Bank advances on the Bank Insurance Fund," Working Paper 05-05, Federal Reserve Bank of Richmond.
    2. Stojanovic, Dusan & Vaughan, Mark D. & Yeager, Timothy J., 2008. "Do Federal Home Loan Bank membership and advances increase bank risk-taking?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 680-698, May.

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