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Identifying Credit Crunches

Author

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  • RAYMOND E. OWENS
  • STACEY L. SCHREFT

Abstract

This article identifies four U.S. credit crunches-periods of sharply increased non-price credit rationing-between 1960 and 1992. Extreme intimidation of banks by the Federal Reserve and U.S. federal government through jawboning and credible threats of increased regulatory oversight caused the crunches of 1966 and 1969. Thus, this article overturns the conventional wisdom that Regulation Q produced the 1960s credit crunches. The 1980 crunch was the unintended effect of direct regulatory limits on credit extensions. More recently, a market-induced crunch occurred from early 1990 through 1992 when a collapse of commercial real estate values made pricing risk on real estate-collateralized loans extremely difficult. Copyright 1995 Western Economic Association International.

Suggested Citation

  • Raymond E. Owens & Stacey L. Schreft, 1995. "Identifying Credit Crunches," Contemporary Economic Policy, Western Economic Association International, vol. 13(2), pages 63-76, April.
  • Handle: RePEc:bla:coecpo:v:13:y:1995:i:2:p:63-76
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    References listed on IDEAS

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    1. Patric H. Hendershott, 1994. "Rental adjustment and valuation of real estate in overbuilt markets: fundamental versus reported office market values in Sydney, Australia," ERES eres1994_138, European Real Estate Society (ERES).
    2. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
    3. Berger, Allen N & Udell, Gregory F, 1992. "Some Evidence on the Empirical Significance of Credit Rationing," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 1047-1077, October.
    4. repec:arz:wpaper:eres1994-138 is not listed on IDEAS
    5. Ray Owens, 1991. "Credit crunch?," Cross Sections, Federal Reserve Bank of Richmond, issue Win, pages 1-3.
    6. Patric H. Hendershott, 1994. "Rental Adjustment & Valuation of Real Estate in Overbuilt Markets: Fundamental vs. Reported Office Market Values in Sydney Australia," NBER Working Papers 4775, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Michael Devaney & William Weber, 2002. "Small-Business Lending and Profit Efficiency in Commercial Banking," Journal of Financial Services Research, Springer;Western Finance Association, vol. 22(3), pages 225-246, December.
    2. McMillin, W. Douglas, 1996. "Monetary policy and bank portfolios," Journal of Economics and Business, Elsevier, vol. 48(4), pages 315-335, October.
    3. Shaffer, Sherrill & Hoover, Scott, 2008. "Endogenous screening, credit crunches, and competition in laxity," Review of Financial Economics, Elsevier, vol. 17(4), pages 296-314, December.
    4. Anil K. Kashyap & Jeremy C. Stein, 1994. "Monetary Policy and Bank Lending," NBER Chapters,in: Monetary Policy, pages 221-261 National Bureau of Economic Research, Inc.
    5. repec:bis:bisbps:95 is not listed on IDEAS
    6. Christina D. Romer & David Romer, 1993. "Credit channel or credit actions? an interpretation of the postwar transmission mechanism," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 71-149.
    7. Koch, Christoffer, 2015. "Deposit interest rate ceilings as credit supply shifters: Bank level evidence on the effects of Regulation Q," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 316-326.
    8. John A. Weinberg, 1994. "Firm size, finance, and investment," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 19-40.
    9. Bordo, Michael D. & Haubrich, Joseph G., 2010. "Credit crises, money and contractions: An historical view," Journal of Monetary Economics, Elsevier, vol. 57(1), pages 1-18, January.
    10. Cara S. Lown & Donald P. Morgan, 2002. "Credit effects in the monetary mechanism," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 217-235.
    11. Mark S. Carey & Stephen D. Prowse & John Rea & Gregory F. Udell, 1993. "The economics of the private placement market," Staff Studies 166, Board of Governors of the Federal Reserve System (U.S.).
    12. Gerhard Fenz & Christian Ragacs & Martin Schneider & Klaus Vondra & Walter Waschiczek, 2015. "Causes of declining investment activity in Austria," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 12-34.
    13. Pecchenino, Rowena A., 1998. "Risk averse bank managers: Exogenous shocks, portfolio reallocations and market spillovers," Journal of Banking & Finance, Elsevier, vol. 22(2), pages 161-174, February.
    14. repec:bla:ecinqu:v:55:y:2017:i:1:p:527-541 is not listed on IDEAS
    15. Robert T. Clair & Paula Tucker, 1993. "Six causes of the credit crunch," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Sep, pages 1-19.
    16. Del Giovane, Paolo & Eramo, Ginette & Nobili, Andrea, 2011. "Disentangling demand and supply in credit developments: A survey-based analysis for Italy," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2719-2732, October.
    17. John A. Weinberg, 1995. "Cycles in lending standards?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-18.

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