NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Christopher Meissner

NBER Working Paper No. 9792
Issued in June 2003
NBER Program(s):   DAE   ME

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.

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Document Object Identifier (DOI): 10.3386/w9792

Published: Meissner, Christopher M. "Voting Rules And The Success Of Connected Lending In 19th Century New England Banks," Explorations in Economic History, 2005, v42(4,Oct), 509-528.

 
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