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Explaining differences in farm lending among banks

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  • Mark E. Levonian

Abstract

Do small, rural banks lend to farmers because they are small, or because they are rural? This paper combines a new measure of the extent of agricultural activity in banking markets with an appropriate statistical framework to examine causes of interbank variation in agricultural production loans. The results show that a bank's size and head office location both matter to some extent, but that the size of a bank's branches in agricultural areas is the single most important factor determining agricultural loan levels. Other variables, such as ownership structure and charter type, have no significant effects. While far from definitive, the results suggest that industry consolidation and mergers may have little effect on agricultural credit, as long as they do not lead to the outright closure of branches in rural areas.

Suggested Citation

  • Mark E. Levonian, 1996. "Explaining differences in farm lending among banks," Economic Review, Federal Reserve Bank of San Francisco, pages 12-22.
    • Handle: RePEc:fip:fedfer:y:1996:p:12-22:n:3
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    References listed on IDEAS

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    1. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492, National Bureau of Economic Research, Inc.
    2. Gary C. Zimmerman, 1989. "Agricultural lending in the West," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue dec22.
    3. Jeffery W. Gunther & Thomas F. Seims, 1995. "The likelihood and extent of bank participation in derivatives activities," Financial Industry Studies Working Paper 95-1, Federal Reserve Bank of Dallas.
    4. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-321, May.
    5. Elizabeth Laderman & Ronald H. Schmidt & Gary C. Zimmerman, 1991. "Location, branching, and bank portfolio diversification: the case of agricultural lending," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 24-38.
    6. R. Alton Gilbert & Michael T. Belongia, 1988. "The Effects of Affiliation with Large Bank Holding Companies on Commercial Bank Lending to Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 70(1), pages 69-78.
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    Cited by:

    1. Goldberg, Lawrence G. & White, Lawrence J., 1998. "De novo banks and lending to small businesses: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 851-867, August.
    2. Steven G. Craig & Polly T. Hardee, 2001. "The Impact of Bank Structure on Small Business and Small Farm Lending," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 6(1), pages 59-83, Spring.
    3. Jalal Akhavein & Lawrence Goldberg & Lawrence White, 2004. "Small Banks, Small Business, and Relationships: An Empirical Study of Lending to Small Farms," Journal of Financial Services Research, Springer;Western Finance Association, vol. 26(3), pages 245-261, December.
    4. DeYoung, Robert & Goldberg, Lawrence G. & White, Lawrence J., 1999. "Youth, adolescence, and maturity of banks: Credit availability to small business in an era of banking consolidation," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 463-492, February.
    5. Jalal Akhavein & Lawrence G. Goldberg & Lawrence J. White, 2002. "Relationship Lending and Denovo Banks: An examination of Bank Lending to Small Farm Borrowers," Working Papers 02-04, New York University, Leonard N. Stern School of Business, Department of Economics.

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    Keywords

    Agricultural credit; Bank loans;

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