Supervisor ratings and the contraction of bank lending to small businesses

Elizabeth K. Kiser, Robin A. Prager and Jason R. Scott
Additional contact information
Elizabeth K. Kiser: https://www.federalreserve.gov/econres/elizabeth-k-kiser.htm

No 2012-59, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Bank lending to small firms in the U.S. fell substantially during the recent financial crisis and the ensuing recession. Because small firms account for a disproportionate share of new job creation, lending to these firms could have important implications for the pace of economic recovery. A number of factors may have contributed to the decline in small business lending over this period. This paper examines the extent to which changes in banks' supervisory ratings are associated with changes in the rate of growth of their lending to small businesses. Limiting our sample to small banks (those with total assets of $5 billion or less), we estimate the relationship between changes in supervisory CAMELS ratings and changes in small commercial and industrial (C&I) or small commercial real estate (CRE) loans to businesses, between 2007 and 2010. Controlling for other relevant factors, including several balance sheet measures of bank health, we find that small banks that experienced ratings downgrades during 2007-2010 exhibited significantly lower rates of growth in small C&I loans and small CRE loans outstanding compared with banks that maintained their ratings at healthy levels during the same period. We also find evidence suggesting that the slower growth in small business lending at downgraded banks is attributable primarily to aspects of the banks' financial health that were not fully reflected in balance sheet data, rather than to the ratings downgrades themselves or the supervisory process surrounding the downgrades.

Date: 2012
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.federalreserve.gov/pubs/feds/2012/201259/201259abs.html (text/html)
http://www.federalreserve.gov/pubs/feds/2012/201259/201259pap.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2012-59

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().