Credit rationing and crowding out during the Industrial Revolution: Evidence from Hoare's Bank, 1702-1862

Crowding-out during the British Industrial Revolution has long been one of the leadingexplanations for slow growth during the Industrial Revolution, but little empirical evidence exists to support it. We argue that examinations of interest rates are fundamentally misguided, and that the eighteenth- and early nineteenth-century private loan market balanced through quantity rationing. Using a unique set of observations on lending volume at a London goldsmith bank, Hoare s, we document the impact of wartime financing on private credit markets. We conclude that there is considerable evidence that government borrowing, especially during wartime, crowded out private credit.

Norges Private Aksjebanker og Sparebanker

Mode of access: Internet.

Farming under constrained budgets: Practices of agricultural credit users in central Lombok, Indonesia

There has been a long dependency on credit by Indonesian farmers as a result of the lack of capital to apply proper farming practices. This paper describes the farming activities applied by agricultural credit users in Central Lombok, Indonesia. A survey was conducted during July 2001- March 2002 of 65 farmers making use of government or private credit in three villages within the Regency. Data from the farmers were collected using face-to-face, semi-structured interviews. Survey results indicated that on average, farmers had some 20 years experience of farming, were aged 40 years, but lacked of formal education. Their main asset was cropping land with average landholding of 0.69 ha. As a consequence of their capital constraints, farmers were commonly making use of credit to finance their farming activities, including both production of rice as the main crop and secondary crops. Farmers generally applied less than recommended amount of inputs in their farming practices, since the amount of credit they obtained was limited. As a result, their farms become less productive and their repayment capability of loans diminished. Of 65 farmers interviewed, 54 could earn extra income by engaging in a variety of non-farm activities, which contributed on average some 36% to family incomes of over Rp 5 million (A$ 1 thousand). The average credit repayment rate made by agricultural producers was 60%. The repayment made did not always reflect farm production capacity, being sometimes supported by other borrowings. The greater role of credit is not in increasing agricultural production or improving farmers’ income, but in helping them to sustain farm production and their living. Farmers need a bigger amount of credit to make an impact on their livelihood. This should be accompanied by extension services for farmers to enable better use of credit and to change their attitude towards it. As well, farmers require to be equipped with technical and market skills to run a business. Interdisciplinarity, holistic analysis, and an expansion of traditional ‘agricultural’ interests to embrace the span of interests included in rural livelihood, are each critical features of revision of the existing system.

Sovereign default, domestic banks and financial institutions

We present a model of sovereign debt in which, contrary to conventional wisdom, government defaultsare costly because they destroy the balance sheets of domestic banks. In our model, better financial institutionsallow banks to be more leveraged, thereby making them more vulnerable to sovereign defaults.Our predictions: government defaults should lead to declines in private credit, and these declines should belarger in countries where financial institutions are more developed and banks hold more government bonds.In these same countries, government defaults should be less likely. Using a large panel of countries, we findevidence consistent with these predictions.

Os investidores reagem à composição das carteiras de fundos?: evidências da crise de 2008

O principal objetivo desse trabalho é identificar o impacto da composição das carteiras dos fundos sobre sua captação no mercado brasileiro. A hipótese central é que, em períodos de crise, a exacerbação da assimetria de informação acerca da qualidade dos ativos faça com que a existência de ativos com exposição ao risco de crédito privado (principalmente Certificados de Depósitos Bancários - CDBs) impacte negativamente a captação. Para testar essa hipótese foram realizadas análises de regressão em painel com dados mensais de fundos de renda fixa e referenciado, exclusivos e não exclusivos, entre 2007 e 2010. Aprofundando a análise, segregaram-se os CDBs entre aqueles emitidos por bancos grandes e médios-pequenos. Dentre os fundos não-exclusivos, encontrou-se que a proporção de CDBs na carteira impactou negativamente a captação de fundos referenciados, ao passo que a presença de CDBs de bancos médios e pequenos impactou negativamente a captação entre os fundos de renda fixa. Nos fundos exclusivos, em que se supõe que o cotista tenha maior poder de intervenção na gestão, não se identificou relação significativa entre exposição a risco de crédito e captação

The European Investment Bank and SMEs: key lessons for Latin America and the Caribbean

Incluye Bibliografía

Do Foreign Currency Deposits Promote or Deter Financial Development in Low-Income Countries? An Empirical Analysis of Cross-Country Data

Foreign currency deposits (FCD) are prevalent in many low-income developing countries, but their impact on bank lending has rarely been examined. An examination of cross-country data indicates that a higher proportion of FCD in total deposits is associated with growth in private credit only in inflationary circumstances (over 24 percent of the annual inflation rate). FCD can lead to a decline in private credit below this threshold level of inflation. Given that FCD exhibit persistence, deregulating them in low-income countries may do more harm than good on financial development in the long term, notably after successful containment of inflation.

Atividade Bancária - Condicionantes do Crédito nos Particulares Caixa Leasing & Factoring – Instituição Financeira de Crédito, S.A

Mestrado em Contabilidade e Análise Financeira

Credit for marginal groups; a study of the principal private sector credit institutions providing loans to marginal groups in the countries of the Dominican Republic, Chile, Ecuador, Colombia, and Guatemala.

"Sponsored by: Pan American Development Foundation, in cooperation with: CUNA International, Inc. [and others]"

Study of mortgage credit. Does the decade 1961-70 pose problems in private housing and mortgage markets which require Federal legislation by 1960?

Mode of access: Internet.

Mandatory accounting disclosure by small private companies

This article analyzes how mandatory accounting disclosure is grounded on differentrationales for private and public companies. It also explores technological changes, such ascomputerised databases and the Internet, which have recently made disclosure of companyaccounts by small companies potentially less costly and more valuable, thanks to electronicfiling and universal online access to credit information systems. These recent developmentsfavour policies that would expand the scope of mandatory publication for small companies incountries where it is voluntary. They also encourage policies to reduce the costs and enhancethe value of disclosure through administrative reforms of filing, archive and retrieval systems.Survey and registry evidence on how the information in the accounts is valued and used bycompanies is consistent with these claims about the evolution of the tradeoff of costs andbenefits that should guide policy in this area.

Circulation of private notes during a currency shortage

This paper provides a search theoretical model that captures two phenomena that have characterized several episodes of monetary history: currency shortages and the circulation of privately issued notes. As usual in these models, the media of exchange are determined as part of the equilibrium. We characterize all the different equilibria and specify the conditions under which there is a currency shortage and/or privately issued notes are used as means of payment. There is multiplicity of equilibria for the entire parameter space, but there always exist an equilibrium in which notes circulate, either alone or together with coins. Hence, credit is a self-fulfilling phenomenon that depends on the beliefs of agents about the acceptability and future repayment of notes. The degree of circulation of coins depends on two crucial parameters, the intrinsic utility of holding coins and the extent with which it is possible to find exchange opportunities in the market.

Private borrowing during the financial revolution: Hoare’s Bank and its customers, 1702-1724

The financial revolution improved the British government s ability to borrow, andthus its ability to wage war. North andWeingast argued that it also permitted privateparties to borrow more cheaply and widely.We test these inferences with evidencefrom a London bank.We confirm that private bank credit was cheap in the earlyeighteenth century, but we argue that it was not available widely. Importantly, thegovernment reduced the usury rate in 1714, sharply reducing the circle of privateclients that could be served profitably.

Determinants of credit risk in secured loans – Evidence from the auto loan industry

The purpose of this study is to examine attributes which have explanation power to the probability of default or serious overdue in secured auto loans. Another goal is to find out differences between defaulted loans and loans which have had payment difficulties but survived without defaulting. 19 independent variables used in this study reflect information available at the time of credit decision. These variables were tested with logistic regression and backward elimination procedure. The data includes 8931 auto loans from a Finnish finance company. 1118 of the contracts were taken by company customers and 7813 by private customers. 130 of the loans defaulted and 584 had serious payment problems but did not default. The maturities of those loans were from one month to 60 months and they have ended during year 2011. The LTV (loan-to-value) variable was ranked as the most significant explainer because of its strong positive relationship with probability of payment difficulties. Another important explainer in this study was the credit rating variable which got a negative relationship with payment problems. Also maturity and car age performed well having both a positive relationship with the probability of payment problems. When compared default and serious overdue situations, the most significant differences were found in the roles of LTV, Maturity and Gender variables.

Asymmetric information, credit market condition, and entrepreneurial finance

The issue of imperfect information plays a much more important role in financing “informationally opaque” small businesses than in financing large companies.1 This chapter examines the asymmetric information issue in entrepreneurial finance from two perspectives: the effects of relationship lending and the impacts of credit market concentration on entrepreneurial financial behavior. These two perspectives are strongly linked to each other via the asymmetric information issue in entrepreneurial finance. Existing literature has recognized the important role played by relationship lending in alleviating the problem of asymmetric information. However, mixed empirical results have been reported. For example, it has been found that the development of relationship lending can improve the availability of finance for small businesses borrowers (Petersen and Rajan, 1994) and reduce the costs of finance (Berger and Udell, 1995). Meanwhile, with monopoly power, banks may extract rents, in terms of charging higher-than-market interest rates, from small businesscustomers who have very concentrated banking relationships (Ongena and Smith, 2001). In addition, both favorable and unfavorable effects of credit market concentration on financing small businesses have been acknowledged. Small business borrowers may have to pay a higher-than-market price on loans (Degryse and Ongena, 2005) and are more likely to be financially constrained (Cetorelli, 2004) than in competitive markets. On the other hand, empirical studies have shown that market concentration create a strong motive for lenders to invest in private information from small business customers, and therefore a concentrated market is more efficient in terms of private information acquisition (Han et al., 2009b). The objective of this chapter is to investigate, by reviewing existing literature, the role played by relationship lending and the effects of market concentration on financing entrepreneurial businesses that are supposed to be informationally opaque. In the first section we review literature on the important role played by asymmetric information in entrepreneurial finance from two perspectives: asymmetric information and relationship lending, and the theoretical modeling of asymmetric information. Then we examine the relationship between capital market conditions and entrepreneurial finance and attempt to answer two questions: Why is the capital market condition important for entrepreneurial finance? and What are the effects of capital market conditions on entrepreneurial financial behavior in terms of discouraged borrowers, cash holding, and the availability and costs of finance?