Insider Lending: Banks, Personal Connections, and Economic Development in Industrial New England

by Naomi R. Lamoreaux

Overview

Today the term "insider lending" conveys an aura of abuse and corruption, of unethical, if not illegal, behavior. In early nineteenth century New England, however, insider lending was an integral aspect of the banking system. Not only was the practice an accepted fact of economic life, but, as Naomi R. Lamoreaux argues, it enabled banks (at least in this particular historical context) to play an important role in financing economic development. As the banking system evolved over the course of the century, however, lending practices became more impersonal and professional.

Product Details

ISBN-13:	9780521566247
Publisher:	Cambridge University Press
Publication date:	08/28/1996
Series:	NBER Series on Long-Term Factors in Economic Development
Edition description:	New Edition
Pages:	194
Product dimensions:	5.98(w) x 9.02(h) x 0.43(d)

Table of Contents

Acknowledgements; Introduction; 1. Vehicles for accumulating capital; 2. Insider lending and Jacksonian hostility towards 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.

What People are Saying About This

Hugh Rockoff

In this creative and well-crafted book, Naomi R. Lamoreaux shows that insider lending actually worked well. There are important implications for banking policy that flow from this study. Experts usually recommend that less developed countries . . . model their banking legislation on the forms that work best in developed countries today. Lamoreaux's work shows that in an economy in which capital markets are thin and kinship ties are important, considerable tolerance for insider lending might be more appropriate. Lamoreaux's prose is clear and persuasive, and subtle ideas only recently explored by economic theorists are explained in plain English. Insider Lending explores an important aspect of banking history that has been largely neglected. Not only will it be cited repeatedly, but it will generate further studies of insider lending in other times and places, and by other financial intermediaries. This book, I predict, will become a classic.

Eisenmenger

Through my long career in a federal bank regulatory agency . . . I have always viewed 'insider lending' as dangerous to the health of individual banks and the broader economy. Naomi Lamoreaux, however, has persuaded me that the early banks in New England were an important exception . . . After reading Lamoreaux's book, one can speculate about the usefulness of insider banking in certain settings.

Editorial Reviews

"...this is an excellent and important book. It is based on extensive analysis of individual bank records, diaries, correspondence, industry literature, public records, and reports; and it is very well written." James Borchert, The Historian

"Readers will gain insights into the evolution of financial institutions in the US but also into the hazards of judging past practices according to current values." E. L. Whalen, Choice

"...in this creative and well-crafted book, Naomi R. Lamoreaux shows that insider lending actually worked well....Insider Lending explores an important aspect of banking history that has been largely neglected. Not only will it be cited repeatedly, but it will generate further studies of insider lending in other times and places, and by other financial intermediaries. This book, I predict, will become a classic." Hugh Rockoff, Journal of American History

"This thin volume packs a powerful message....Because banking issues so often intersect with politics in this era, every scholar who delves into U.S. history during the nineteenth century should become familiar with the broad outline of Lamoreaux's revisionist thesis." Edwin Perkins, American Historical Review

"Lamoreaux effectively challenges modernization theorists and those who claimed kinship ties had lost their economic importance in the first half of the century. She also demonstrates that pre-Civil War banks did play a major role in economic development....this is an excellent and important book. It is based on extensive analysis of individual bank records, diaries, correspondence, industry literature, public records, and reports; and it is very well written. Lamoreaux establishes a tight argument that sheds important lights on changing bank practices and contributes significantly to several scholarly debates." James Borchert, The Historian

"Lamoreaux's book demonstrates that banking history does not have to be dull. Hers is a lively essay that should be read by all students of banking history or early industrialization." Journal of Interdisciplinary History

From the Publisher