TY  - JOUR
AU  - Bodenhorn,Howard
TI  - Usury Ceilings, Relationships and Bank Lending Behavior: Evidence from Nineteenth Century
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11734
PY  - 2005
Y2  - November 2005
UR  - http://www.nber.org/papers/w11734
L1  - http://www.nber.org/papers/w11734.pdf
N1  - Author contact info:
Howard Bodenhorn
John E. Walker Department of Economics
College of Business and Behavioral Science
201-B Sirrine Hall
Clemson University
Clemson, SC 29634
Tel: 864/656-4335
E-Mail: bodenhorn@gmail.com
AB  - 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.
ER  -