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  4. Crop Insurance's Impact on Commercial Bank Loan Volumes

Crop Insurance's Impact on Commercial Bank Loan Volumes

File(s)
Schultz_cornell_0058O_11185.pdf (1.6 MB)
Permanent Link(s)
https://doi.org/10.7298/7eat-rk63
https://hdl.handle.net/1813/109683
Collections
Cornell Theses and Dissertations
Applied Economics and Management MS Theses
Author
Schultz, Alexander John
Abstract

This study uses a multi-pronged empirical strategy to improve understanding of how the Federal crop insurance program influenced the supply of agricultural credit. Theoretically, crop insurance could increase lending through two key channels: by decreasing bank exposure to farm sector risk and providing hard information on loan repayment. Using 2 decades of publicly available county-level crop insurance participation data from RMA and loan volume data estimated based on FDIC call reports, we test whether the total volume of production credit extended by commercial banks increases in response to crop insurance uptake. We also consider whether the level of the response is related to the level of bank specialization in agriculture. Our first model is a standard county level fixed effects model that allows us to analyze this relationship over a flexible time period. We also use the policy shock to crop insurance participation in 1995 caused the the 1994 FCIRA to identify the impact of crop insurance use on agricultural loan volumes, using a difference-in-differences strategy based on livestock production not being covered by Federal crop insurance in the 1990s and an instrumental variables strategy developed by O’Donoghue et al. (2009). We find that across different periods and two of our three empirical strategies, higher crop insurance use has a consistent, robust relationship with higher loan volumes. The effect is smaller or nonexistent when only agricultural banks are considered, suggesting that the explicit information on repayment likelihood provided by crop insurance was a strong driver in increasing loan volumes.

Description
72 pages
Date Issued
2021-05
Keywords
commercial banking
•
crop insurance
•
lending
Committee Chair
Ifft, Jennifer
Committee Member
Murfin, Justin
Degree Discipline
Applied Economics and Management
Degree Name
M.S., Applied Economics and Management
Degree Level
Master of Science
Rights
Attribution 4.0 International
Rights URI
https://creativecommons.org/licenses/by/4.0/
Type
dissertation or thesis
Link(s) to Catalog Record
https://newcatalog.library.cornell.edu/catalog/15049505

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