بازپرداخت برای قرض بیشتر: رتبه و اعتبار بانکی دسترسی در اوایل امریکا

The birth of commercial banking in New England after the American Revolution provides an important case to examine banking development under asymmetric information. Similar to credit markets in developing countries today, bank borrowers of early America usually had little or no collateral. This paper uses a unique data set based on loans between 1803 and 1833 for Plymouth Bank to examine bank lending policies in the absence of collateral. Empirical evidence suggests that borrowers with little collateral established their credit-worthiness through repeated interaction with banks.

Early bankers, like all other lenders, were faced with imperfect information in assessing loan risks. Lamoreaux (1994) argues that early banks in New England used kinship and personal ties to overcome this difficulty. Banks did not just lend to friends and family members because of their personal ties, they were willing to do so because they had more complete information on these individuals. A lender would not knowingly lend to a family whose members he knew to be untrustworthy. On the other hand, banks still lent to individuals outside of their personal networks. We know relatively little about how borrowers unrelated to bank officials were able to acquire and maintain access to credit. The lack of collateral in modern small businesses echoes the situation in early American credit markets. Recent theoretical works, such as Diamond, 1989, Boot and Thakor, 1994, Petersen and Rajan, 1995 and Martinelli, 1997, evaluate the importance of relationships between banks and their borrowers. A particularly interesting question is how small businesses and startups acquire credit. Small businesses, with few assets as collateral, are particularly dependent on banking relationships. As specific banks and borrowers interact repeatedly, the borrowers gradually reveal valuable information to banks to build up a reputation, thereby securing future access to credit. Specific conditions in early America further accentuated the role of reputation. First, no agency specialized in centralized credit history reporting; thus, banks had to collect information on borrowers themselves. Second, many banks remained local monopolies for extended periods. Therefore, from the banks’ perspective, their monopoly status allowed them to internalize the benefit of collecting information. From the borrower’s perspective, a good reputation with local banks secured funding for future opportunities. Once the reputation was built, it would be costly to switch to another bank without such private information. This reputation mechanism is especially crucial in explaining a bank’s loans to “outsiders.” Although a large portion of lending was to bank directors, a fair share of loans went to individuals outside this inner circle. A bank’s need for background information before extending loans to such individuals was particularly acute.1 After the first loan took effect, it was in the bank’s interest to monitor borrowers’ behavior and keep track of interest and principal payments. When the borrowers applied for subsequent loans, the information accumulated from the previous loans became crucial for the bank’s lending decision. This paper uses the records of the Plymouth Bank, in Plymouth, Massachusetts, between 1803 and 1833 to investigate the role of reputation in early bank lending. Specifically, I aim to answer the following questions. Did reputation matter in securing access to bank credit? If so, in what way did it affect borrowers? Was reputation crucial in the presence of collateral? Empirical evidence shows that, like today, borrowers first acquired small loans. They gradually built up their reputation by repaying the previous loans. Other things equal, each loan repaid would increase the amount of credit extended in the future. While borrowers’ good reputation secured better credit access, reputation only mattered for loans without collateral. Therefore in the absence of collateral, reputation acted as a substitute. Over time, the gradual building of a cohort of reputable borrowers also changed the composition of the bank’s clientele, the bank relied less on the existing network of insiders and more on the acquired information from repeated interaction with borrowers. This study not only helps us understand how the early American financial system functioned, but also to draw broader implications for the development of the early American economy. Indeed, access to bank credit enabled borrowers to invest in new ventures, thereby creating opportunities for growth and prosperity.

One major distinction of early banks from other credit sources was their ability to pool financial resources, thereby extending larger loans. For many small borrowers, bank loans were the only possible source for credit beyond the value of their properties. Like lenders in the developing economies today, early American banks were faced with asymmetric information. This paper investigates how banks collect information in a local setting. Specifically, it focuses on the information flow after the first loans. Empirical results show that in the early stage, the bank tended to lend smaller amounts to new borrowers. In this process, borrowers earned access to larger loans after paying off their earlier debts. Therefore the accumulation of personal reputation played a vital role in securing future credit access. The results echo those in Bodenhorn (2003), who demonstrates that firms having long-term relationships with banks enjoyed more favorable loan terms. In addition, the role of reputation was particularly prominent when loans were not backed by collateral. In other words, the bank used borrowers’ reputation as a substitute for collateral. Literature in economic development, such as Fleisig, 1996, Besley, 1995, Morduch, 1999 and Armendáriz de Aghion and Morduch, 2000 all suggests that when collateral is insufficient or simply non-existent, lenders seek alternative mechanisms to secure loans and avoid moral hazard. In the case of the Plymouth Bank, the directors resorted to reputation and the threat of denial of future credit to achieve these goals. The process implies that in the context of a local economy, the notion of “insiders” might not have been static. New borrowers could demonstrate their ability to pay back loans over time, thereby establish their credit-worthiness. The reputation building process enabled more individuals to access bank credit. They have become, in a sense, insiders.