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Usury Ceilings, Relationships and Bank Lending Behavior: Evidence from Nineteenth Century

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  • Howard Bodenhorn

Abstract

Few pieces of economic regulation are ubiquitous as usury limits. Similarly, few economic principles are as widely accepted as the belief that interference with freely contracted prices leads to market distortions, and many studies of financial markets find that usury limits negatively affect credit availability. This study shows that when no regulatory authority monitors and stands ready to punish violators of the usury limit when intermediaries and borrowers form long-term relationships, banks and borrowers regularly contract for interest rates in excess of the usury ceiling. Time series analysis reveals limited effects on credit availability when market rates exceed the usury ceiling. Cross-sectional analysis of individual loan contracts also shows that the positive effect of a long-term relationship offsets the negative effect of the usury limit on credit availability.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11734.

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Date of creation: Nov 2005
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Publication status: published as Bodenhorn, Howard, 2007. "Usury ceilings and bank lending behavior: Evidence from nineteenth century New York," Explorations in Economic History, Elsevier, vol. 44(2), pages 179-202, April.
Handle: RePEc:nbr:nberwo:11734
Note: DAE
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Find related papers by JEL classification:

  • N2 - Economic History - - Financial Markets and Institutions
  • N8 - Economic History - - Micro-Business History
  • G2 - Financial Economics - - Financial Institutions and Services

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  15. Howard Bodenhorn, 2004. "Bank Chartering and Political Corruption in Antebellum New York: Free Banking as Reform," NBER Working Papers 10479, National Bureau of Economic Research, Inc.
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  17. Marco A. Espinosa-Vega & William C. Hunter, 1994. "Financial repression and economic development," Economic Review, Federal Reserve Bank of Atlanta, issue Sep, pages 1-11.
  18. Jaffee, Dwight M & Modigliani, Franco, 1969. "A Theory and Test of Credit Rationing," American Economic Review, American Economic Association, vol. 59(5), pages 850-72, December.
  19. Bodenhorn, Howard, 2003. " Short-Term Loans and Long-Term Relationships: Relationship Lending in Early America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 485-505, August.
  20. Bodenhorn, Howard, 1992. "Capital Mobility and Financial Integration in Antebellum America," The Journal of Economic History, Cambridge University Press, vol. 52(03), pages 585-610, September.
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Cited by:

  1. Efraim Benmelech & Tobias J. Moskowitz, 2007. "The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century," NBER Working Papers 12851, National Bureau of Economic Research, Inc.

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