Innovations in Banking Practices and the Credit Boom of the 1920s
Business History Review, Forthcoming
28 Pages Posted: 24 Apr 2009 Last revised: 18 Dec 2012
Date Written: December 18, 2012
Abstract
For the development of banking the 1920s are important because in that historical period a set of new practices influenced banks’ lending policies that strongly favored credit expansion. Those innovations pertained to the measurement of credit risk and to new sales methods for banks. In particular, we describe the development of scientific credit analysis and the so-called credit barometrics. Credit barometrics were indicators or credit worthiness based on statistical analysis and replaced old rules of thumb. We document that these indicators were flawed and that they induced an erroneous belief in a future with rational and safe credit management. By studying the course of major New York banks as well as aggregate data we show how the innovations in banking methods contributed to the credit boom that ended with the crash in 1929.
Keywords: Banking Principles, Credit Booms, Competitive Strategies
JEL Classification: N22, G21, E32, B19
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Monetary Policy and Asset Price Volatility
By Ben S. Bernanke and Mark Gertler
-
Asset Prices, Financial and Monetary Stability: Exploring the Nexus
-
Boom-Busts in Asset Prices, Economic Instability, and Monetary Policy
By Michael D. Bordo and Olivier Jeanne
-
Boom-Busts in Asset Prices, Economic Instability and Monetary Policy
By Michael D. Bordo and Olivier Jeanne
-
Whither Monetary and Financial Stability? The Implications of Evolving Policy Regimes
-
U.S. Stock Market Crashes and Their Aftermath: Implications for Monetary Policy
-
Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008
By Moritz Schularick and Alan M. Taylor
-
Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870-2008
By Moritz Schularick and Alan M. Taylor
-
Securing Sustainable Price Stability: Should Credit Come Back from the Wilderness?