Relationship Lending and the Great Depression

68 Pages Posted: 5 Dec 2016 Last revised: 20 Jul 2023

See all articles by Jon S. Cohen

Jon S. Cohen

University of Toronto - Department of Economics

Kinda Hachem

University of Chicago - Booth School of Business

Gary Richardson

University of California at Irvine; National Bureau of Economic Research

Date Written: December 2016

Abstract

The collapse of long-term lending relationships amplified the Great Depression. We demonstrate this by developing a new measure of lending relationships that can be calculated from widely available data at any level of aggregation. Our approach exploits differences in the responsiveness of loan rates to bank funding costs and is supported by historical evidence and theoretical arguments. The new measure reveals that the marginal impact of bank suspensions on economic activity was higher in more relationship-intensive areas, providing the first formal evidence that relationship lending propagated the real effects of banking sector distress in the early 1930s.

Suggested Citation

Cohen, Jon S. and Hachem, Kinda and Richardson, Gary, Relationship Lending and the Great Depression (December 2016). NBER Working Paper No. w22891, Available at SSRN: https://ssrn.com/abstract=2880329

Jon S. Cohen (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada

Kinda Hachem

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Gary Richardson

University of California at Irvine ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

HOME PAGE: http://www.socsci.uci.edu/~garyr/welcome.html

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org

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