Usury Ceilings, Relationships and Bank Lending Behavior: Evidence from Nineteenth Century
AbstractFew pieces of economic regulation are ubiquitous as usury limits. Similarly, few economic principles are as widely accepted as the belief that interference with freely contracted prices leads to market distortions, and many studies of financial markets find that usury limits negatively affect credit availability. This study shows that when no regulatory authority monitors and stands ready to punish violators of the usury limit when intermediaries and borrowers form long-term relationships, banks and borrowers regularly contract for interest rates in excess of the usury ceiling. Time series analysis reveals limited effects on credit availability when market rates exceed the usury ceiling. Cross-sectional analysis of individual loan contracts also shows that the positive effect of a long-term relationship offsets the negative effect of the usury limit on credit availability.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11734.
Date of creation: Nov 2005
Date of revision:
Publication status: published as Bodenhorn, Howard, 2007. "Usury ceilings and bank lending behavior: Evidence from nineteenth century New York," Explorations in Economic History, Elsevier, vol. 44(2), pages 179-202, April.
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Find related papers by JEL classification:
- N2 - Economic History - - Financial Markets and Institutions
- N8 - Economic History - - Micro-Business History
- G2 - Financial Economics - - Financial Institutions and Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-12 (All new papers)
- NEP-FIN-2005-11-12 (Finance)
- NEP-FMK-2005-11-12 (Financial Markets)
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