Committee Structure and the Success of Connected Lending in Nineteenth Century New England Banks

29 Pages Posted: 25 Jul 2003

See all articles by Christopher M. Meissner

Christopher M. Meissner

University of Cambridge - Faculty of Economics and Politics; National Bureau of Economic Research (NBER)

Date Written: June 2003

Abstract

Early nineteenth century New England banking exhibited high levels of lending to directors and their associates (i.e., connected lending). Today many think this arrangement can lead to inefficiency and financial fragility. This paper explores the decision making processes inside these banks and argues that connected lending was viable when many people were involved in loan decisions. The committees used to vote on the approval of loans are the focus. Banks that required more votes for a given committee size prevented the approval of loans with private gains and social costs. The historical data are consistent with the idea that higher levels of consensus in the loan committees raised the return on assets.

Suggested Citation

Meissner, Christopher M., Committee Structure and the Success of Connected Lending in Nineteenth Century New England Banks (June 2003). NBER Working Paper No. w9792, Available at SSRN: https://ssrn.com/abstract=418294

Christopher M. Meissner (Contact Author)

University of Cambridge - Faculty of Economics and Politics ( email )

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HOME PAGE: http://www.econ.cam.ac.uk/faculty/meissner/index.htm

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