Do Minority-owned Community Development Financial Institutions Extend More Lending in Response to Growth in Their Equity Capital?

Abstract

In this paper, we develop a fixed effects model to assess the factors that are most reliably important or significantly associated in predicting variations in equity capital positioning and asset growth adjustments for minority depository institutions (MDIs) that are also community development financial institutions (CDFIs). Asset size played a role during each of the periods of the analysis. For the period immediately after the financial crisis, net income (profitability) played the most significant role for all bank types in terms of equity capital growth, but especially for MDIs-CDFIs. For the later period of analysis, from 2014 to 2019, macroeconomic factors and business cycle fixed effects have the most significant predictive power for equity capital. We find results that point to the benefit of strong balance sheets and equity capital ratios for MDIs-CDFIs as they extend lending and their other assets' growth strategies.

Keywords

bank lending bank capital community development financial institutions minority depository banks

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