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

This book, first published in 1994, explores the important role that insider lending played in the economic development of early nineteenth-century New England. Ironically, when banks began to lend more and more of their funds at arm's length, information problems forced them to restrict their activities to short-term commercial lending.

The term insider lending conveys an aura of abuse and corruption, of unethical, if not illegal, behaviour. 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. Ironically, the information problems banks faced when they began to conduct more and more of their business at arm's length forced them to concentrate on providing short-term loans to commercial borrowers and to give up financing economic development. This book was first published in 1994.