TY  - JOUR
AU  - Benmelech,Efraim
AU  - Moskowitz,Tobias J.
TI  - The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12851
PY  - 2007
Y2  - January 2007
UR  - http://www.nber.org/papers/w12851
L1  - http://www.nber.org/papers/w12851.pdf
N1  - Author contact info:
Efraim Benmelech
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL 60208
Tel: 847/491-4462
Fax: 847/491-5719
E-Mail: e-benmelech@kellogg.northwestern.edu

Tobias J. Moskowitz
Booth School of Business
University of Chicago
5807 S. Woodlawn Ave.
Chicago, IL  60637
Tel: 773/834-2757
Fax: 773/702-0458
E-Mail: tobias.moskowitz@chicagobooth.edu
AB  - We investigate the causes and consequences of financial regulation by studying the political economy of U.S. state usury laws in the 19th century.  We find evidence that usury laws were binding and enforced and that lending activity was affected by rate ceilings.  Exploiting the heterogeneity across states and time in regulation, enforcement, and market conditions, we find that regulation tightens when it is less costly and when it coexists with other economic and political restrictions that exclude certain groups.  Furthermore, the same determinants of financial regulation that favor one group (and restrict others) are associated with higher (lower) future economic growth rates.  The evidence suggests regulation is the outcome of private interests using the coercive power of the state to extract rents from other groups, highlighting the endogeneity of financial development and growth.
ER  -