Interest Rate Caps and Bank Loan Supply: Locking out the Small Borrower in the Great Depression

Haelim Anderson and Matthew Jaremski

No 34277, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the effects of changes in an interest rate cap on small loan brokers in New Jersey during the Great Depression. Using newly constructed data on brokers and banks, we find that small loans declined sharply when the cap was lowered, and despite worsening economic conditions, they rebounded when the cap was raised back up. Consumers could not obtain alternative credit from banks, effectively shutting them out of the market. The cap had a permanent impact on the small loan market due to the large number of broker closures, thereby further reducing the availability of small loans and increasing market concentration. Our findings highlight the fundamental trade-off faced by policymakers: strict rate caps may protect borrowers from predatory lending but can eliminate necessary credit options for vulnerable populations.

JEL-codes: G01 G21 G28 N12 N22 (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-fdg and nep-his
Note: DAE
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w34277.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:34277

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w34277
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().