The Capital Crunch: Neither A Borrower Nor A Lender Be
The dramatic reduction in the growth rate of bank lending associated with the 1990-91 recession, particularly in New England that has evoked claims by many observers of a credit crunch. However because of the difficulty in determining whether the observed slow credit growth is a demand or supply for economic activity remains elusive. We overcome this obstacle by examining a cross section of banks in New England that have experienced the same economic downturn, effectively controlling for changes in demand. We find empirical support for a capital crunch, where by poorly capitalized institutions shrink to satisfy capital requirements.
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|Date of creation:||Dec 1993|
|Contact details of provider:|| Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA|
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- 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. Full references (including those not matched with items on IDEAS)
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