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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.

Suggested Citation

  • Peek, Joe & Rosengren, Eric, 1995. "The Capital Crunch: Neither a Borrower nor a Lender Be," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 625-638, August.
    • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:3:p:625-38
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