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

Howard Bodenhorn

No 11734, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G2 N2 N8 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: DAE
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Citations: View citations in EconPapers (4)

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.

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