The Capital Crunch: Neither A Borrower Nor A Lender Be

Joe Peek and Eric Rosengren ()

No 243, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: The dramatic reduction in the growth rate of bank lending associated with the 1990-91 recession, particularly in New England that has evoked claims by many observers of a credit crunch. However because of the difficulty in determining whether the observed slow credit growth is a demand or supply for economic activity remains elusive. We overcome this obstacle by examining a cross section of banks in New England that have experienced the same economic downturn, effectively controlling for changes in demand. We find empirical support for a capital crunch, where by poorly capitalized institutions shrink to satisfy capital requirements.

Date: 1993-12
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Related works:
Journal Article: The Capital Crunch: Neither a Borrower nor a Lender Be (1995)
Working Paper: The capital crunch: neither a borrower nor a lender be (1991)
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