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Committee Structure and the Success of Connected Lending in Nineteenth Century New England Banks

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Christopher Meissner

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Abstract

Early nineteenth century New England banking exhibited high levels of lending to directors and their associates (i.e., connected lending). Today many think this arrangement can lead to inefficiency and financial fragility. This paper explores the decision making processes inside these banks and argues that connected lending was viable when many people were involved in loan decisions. The committees used to vote on the approval of loans are the focus. Banks that required more votes for a given committee size prevented the approval of loans with private gains and social costs. The historical data are consistent with the idea that higher levels of consensus in the loan committees raised the return on assets.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9792.

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Date of creation: Jun 2003
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Handle: RePEc:nbr:nberwo:9792

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Find related papers by JEL classification:
D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

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This page was last updated on 2008-10-7.

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