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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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    1. 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.
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    4. 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.
    5. Gregory E. Elliehausen & John D. Wolken, 1990. "Banking markets and the use of financial services by small and medium- sized businesses," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 801-817.
    6. John R. Walter, 1991. "Loan loss reserves," Economic Review, Federal Reserve Bank of Richmond, issue Jul, pages 20-30.
    7. 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.
    8. Benjamin M. Friedman, 1972. "Credit rationing: a review," Staff Studies 72, Board of Governors of the Federal Reserve System (U.S.).
    9. 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.
    10. 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.
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