Book contents
- Frontmatter
- Contents
- Acknowledgments
- Introduction
- 1 Vehicles for accumulating capital
- 2 Insider lending and Jacksonian hostility toward banks
- 3 Engines of economic development
- 4 The decline of insider lending and the problem of determining creditworthiness
- 5 Professionalization and specialization
- 6 The merger movement in banking
- Conclusion
- Index
- Plate section
3 - Engines of economic development
Published online by Cambridge University Press: 06 July 2010
- Frontmatter
- Contents
- Acknowledgments
- Introduction
- 1 Vehicles for accumulating capital
- 2 Insider lending and Jacksonian hostility toward banks
- 3 Engines of economic development
- 4 The decline of insider lending and the problem of determining creditworthiness
- 5 Professionalization and specialization
- 6 The merger movement in banking
- Conclusion
- Index
- Plate section
Summary
Whatever tends to aid the operations of mechanical labour, must necessarily contribute to the wealth & prosperity of the whole community.
Petition for the Mechanics BankDespite the burst of regulatory legislation that followed the Panic of 1837, the banking system in the 1840s and 50s continued to operate much as it had during the 1820s and early 30s. Many institutions were still managed by and for the groups that controlled them, and there was little the newly created boards of bank commissioners could do to change this behavior.
But were the banking practices of the period actually in need of reform? Was insider lending a genuinely serious problem? The purpose of this chapter is to explore these issues by assessing the extent to which insider lending led to discrimination in the credit markets, undermined the soundness of the banking system, and slowed the pace of industrialization. It is my contention that the detrimental consequences of the practice were minimal in the context of the early-nineteenth-century economy, and that insider lending contributed in a positive way to the economic development of the region. Because the practice of insider lending was common knowledge, purchasers of bank stock knew that they were for all practical purposes investing in the enterprises of the institution's directors. As a result, early-nineteenth-century banks functioned more like investment clubs than like modern commercial institutions. They provided a relatively safe way for ordinary savers to invest in the economic development of their communities.
- Type
- Chapter
- Information
- Insider LendingBanks, Personal Connections, and Economic Development in Industrial New England, pp. 52 - 83Publisher: Cambridge University PressPrint publication year: 1994
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