Insider lending
Subtitle: banks, personal connections, and economic development in industrial New England
By: Naomi R. Lamoreaux.
Contributors: National Bureau of Economic Research.
Series: NBER series on long-term factors in economic development
Publisher: Cambridge University Press
Published: 1994
Place of publication: Cambridge [England]; New York
Language: eng
Number of pages: 170
Subjects: Banks and banking -- New England -- History -- 19th century.; Commercial loans -- New England -- History -- 19th century.; Economic development projects -- New England -- Finance -- History -- 19th century.; Asset-backed financing -- New England -- History -- 19th century,
Description: Banks in early nineteenth-century New England functioned very differently from their modern counterparts. Most significantly, they lent a large proportion of their funds to members of their own boards of directors or to others with close personal connections to the boards. In Insider Lending, Naomi R. Lamoreaux explores the workings of this early nineteenth-century banking system - how and how well it functioned and the way it was regarded by contemporaries.

She also traces the processes that transformed this banking system based on insider lending into a more impersonal and professional system by the end of the century. In the particular social, economic, and political context of early nineteenth-century New England, Lamoreaux argues, the benefits of insider lending outweighed its costs, and banks were instrumental in financing economic development. As the banking system grew more impersonal, however, banks came to play a more restricted role in economic life. At the root of this change were the new information problems banks faced when they conducted more and more of their business at arm's length.

Difficulties in obtaining information about the creditworthiness of borrowers and in conveying information to the public about their own soundness led them to concentrate on providing short-term loans to commercial borrowers and to forsake the important role they had played early on in financing economic development.
Notes: Includes bibliographical references and index.
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