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The Capital Crunch: Neither a Borrower nor a Lender Be

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  • Peek, Joe
  • Rosengren, Eric

Abstract

The dramatic reduction in the growth rate of bank lending associated with the 1990-91 recession, particularly in New England, has evoked claims by many observers of a credit crunch. To overcome the difficulty in determining whether the observed slow credit growth is a demand or supply phenomenon, the authors examine a cross-section of banks in New England that have experienced the same economic downturn, effectively controlling for changes in demand. They find empirical support for a capital crunch, whereby poorly capitalized institutions shrink more than their better-capitalized peers, indicating an independent role for credit supply. Copyright 1995 by Ohio State University Press.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 27 (1995)
Issue (Month): 3 (August)
Pages: 625-38

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Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:3:p:625-38

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Kashyap, Anil K & Stein, Jeremy C & Wilcox, David W, 1993. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance," American Economic Review, American Economic Association, vol. 83(1), pages 78-98, March.
  2. Gregory E. Elliehausen & John D. Wolken, 1990. "Banking markets and the use of financial services by small and medium- sized businesses," Staff Studies 160, Board of Governors of the Federal Reserve System (U.S.).
  3. King, Stephen R, 1986. "Monetary Transmission: Through Bank Loans or Bank Liabilities?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 290-303, August.
  4. William P. Osterberg, 1990. "Bank capital requirements and leverage: a review of the literature," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-12.
  5. John R. Walter, 1991. "Loan loss reserves," Economic Review, Federal Reserve Bank of Richmond, issue Jul, pages 20-30.
  6. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  9. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  10. Benjamin M. Friedman, 1972. "Credit rationing: a review," Staff Studies 72, Board of Governors of the Federal Reserve System (U.S.).
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