IDEAS home Printed from https://ideas.repec.org/p/gii/giihei/heidwp11-2014.html
   My bibliography  Save this paper

The Separation of Information and Lending and the Rise of Rating Agencies in the United States

Author

Listed:

Abstract

This paper provides a new interpretation of the early rise of rating agencies in the United States (initially known as ‘Mercantile Agencies’). We explain this American exceptionality through an inductive approach that revisits the conventional parallel with the UK. In contrast with earlier narratives that have emphasized the role of Common Law and the greater understanding of American judges that would have supported the rise of an ethos of ‘transparency’, we argue that Mercantile Agencies prospered as a remedy to deficient bankruptcy law and weak protection of creditor rights in the US. The result was to raise the value of the nation-wide registry of defaulters which the Mercantile Agencies managed. This ensured the Agencies’ profitability and endowed them with resources to buy their survival in a legal environment that remained stubbornly hostile.

Suggested Citation

  • Marc Flandreau & Gabriel Geisler Mesevage, 2014. "The Separation of Information and Lending and the Rise of Rating Agencies in the United States," IHEID Working Papers 11-2014, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heidwp11-2014
    as

    Download full text from publisher

    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP11-2014.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Marc Flandreau & Christophe Galimard & Clemens Jobst & Pilar Nogués-Marco, 2009. "Monetary geography before the Industrial Revolution," Cambridge Journal of Regions, Economy and Society, Cambridge Political Economy Society, vol. 2(2), pages 149-171.
    2. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August.
    3. Mark Carlson, 2004. "Are Branch Banks Better Survivors? Evidence from the Depression Era," Economic Inquiry, Western Economic Association International, vol. 42(1), pages 111-126, January.
    4. Marc Flandreau, Stefano Ugolini, 2011. "Where It All Began: Lending of Last Resort and the Bank of England during the Overend, Gurney Panic of 1866," IHEID Working Papers 04-2011, Economics Section, The Graduate Institute of International Studies.
    5. Francesco L.Galassi & Lucy A. Newton, 2001. "My word is my bond ; reputation as collateral in nineteenth century English provincial banking," The Warwick Economics Research Paper Series (TWERPS) 599, University of Warwick, Department of Economics.
    6. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
    7. Wheelock, David C., 1992. "Regulation and Bank Failures: New Evidence from the Agricultural Collapse of the 1920s," The Journal of Economic History, Cambridge University Press, vol. 52(04), pages 806-825, December.
    8. Barry Eichengreen & Marc Flandreau, 2012. "The Federal Reserve, the Bank of England, and the Rise of the Dollar as an International Currency, 1914–1939," Open Economies Review, Springer, vol. 23(1), pages 57-87, February.
    9. Coase, R H, 1974. "The Lighthouse in Economics," Journal of Law and Economics, University of Chicago Press, vol. 17(2), pages 357-376, October.
    10. Hidy, R. W., 1935. "The House of Baring and American Trade," Business History Review, Cambridge University Press, vol. 9(05), pages 71-75, October.
    11. Calomiris, Charles W., 1990. "Is Deposit Insurance Necessary? A Historical Perspective," The Journal of Economic History, Cambridge University Press, vol. 50(02), pages 283-295, June.
    12. Franklin Allen & Douglas Gale, 2001. "Comparing Financial Systems," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511258, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Calomiris, Charles W. & Flandreau, Marc & Laeven, Luc, 2016. "Political foundations of the lender of last resort: A global historical narrative," Journal of Financial Intermediation, Elsevier, vol. 28(C), pages 48-65.

    More about this item

    Keywords

    Rating; Mercantile Agencies; Information; Credit Insurance; Comparative Economic History; Libel; Business Law;

    JEL classification:

    • P5 - Economic Systems - - Comparative Economic Systems
    • G2 - Financial Economics - - Financial Institutions and Services
    • N2 - Economic History - - Financial Markets and Institutions
    • K2 - Law and Economics - - Regulation and Business Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gii:giihei:heidwp11-2014. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dorina Dobre). General contact details of provider: http://edirc.repec.org/data/ieheich.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.