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Economic crisis and the demise of a popular contractual form: Building & Loans in the 1930s

Sebastian Fleitas, Price Fishback () and Kenneth Snowden

Journal of Financial Intermediation, 2018, vol. 36, issue C, 28-44

Abstract: Before the 1930s Building and Loan Associations (B&Ls) were the leading residential mortgage leaders in the U.S. When severely distressed during the housing crisis of the 1930s, B&Ls frequently took years to liquidate. These delays in resolution resulted from the unique B&L contract that encouraged borrowing members to prolong dissolution and gave them shared control over the timing of liquidation. We estimate a hazard model of dissolution using a new dataset of New Jersey B&Ls and find that the probability of liquidation rose 37% when the share of non-borrowing members rose above two-thirds. The severe restriction on liquidity suffered by non-borrowers was instrumental to the rapid transition from the traditional B&L to the modern Savings & Loan industry during the 1930s housing crisis.

Keywords: Mortgage; Great Depression; Savings and loan; Housing crisis (search for similar items in EconPapers)
Date: 2018
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