Funding Constraints at Community Banks: A Pre- and Post-2008 Recession Analysis of the Role of Federal Home Loan Bank Advances

摘要

Prior to the implementation of the Gramm-Leach-Bliley Act, which permitted the Federal Home Loan Bank (FHLB) to advance financial asset-secured funds to community banks, regional thrifts, credit unions, and similar financial intermediaries, many small financial institutions were unable to expand their lending due to deposit- related capital constraints. Congress9 intent in passing the legislation was to provide a subsidized source of funds to encourage and support expansion of lending to small enterprises. Indications are that FHLB advances have increased community bank lending, but to date no research has focused on the roles of the macroeconomic environment in the use of FHLB advances in support of it. Using year-end data from matched-pairs of FHLB advances users and nonusers in both pre- and post-recession periods, this paper examines if community banks are funding constrained. Previous research has shown that bank deposits do not generally constrain small business lending. Unlike previous studies, our analysis distinguishes between community banks that rely on FHLB advances and those that do not. We also include certain macroeconomic factors, and limit the data to small community banks operating in non-metropolitan geographic areas both pre- and post-recessionary periods. We find that deposits do work to constrain community bank lending prior to and after recession.