NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Lending to Lemons: Landschaft Credit in Eighteenth-Century Prussia

Kirsten Wandschneider

Chapter in NBER book Housing and Mortgage Markets in Historical Perspective (2014), Eugene N. White, Kenneth Snowden, and Price Fishback, editors (p. 305 - 325)
Conference held September 23-24, 2011
Published in July 2014 by University of Chicago Press
© 2014 by the National Bureau of Economic Research

This chapter describes the emergence of cooperative mortgage credit associations, called 'Landschaften' in 18th century Prussia, and thereby tells the history of mortgage-covered bonds. Landschaften facilitated the refinancing of loans for Prussian estates by issuing covered bonds (Pfandbriefe) that were jointly backed by their members. Landschaften were public institutions that did not have a profit motive and, except for reserve funds, did not hold their own capital. They relied on dual recourse, cooperative structure, joint liability, and local administration to overcome asymmetric information problems related to lending. Their emergence serves as an example of financial innovation in historical mortgage markets. Pfandbriefe exist to this day and are known for their security. Their longevity is attributable to some of their historical features.

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This chapter first appeared as NBER working paper w19159, Lending to Lemons: Landschafts-Credit in 18th Century Prussia, Kirsten Wandschneider
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