The political economy of financial regulation: Evidence from U.S. state usury laws in the 19th century

Efraim Benmelech, Tobias J. Moskowitz*

*Corresponding author for this work

Research output: Contribution to journalArticle

59 Scopus citations

Abstract

Financial regulation was as hotly debated a political issue in the 19th century as it is today. We study the political economy of state usury laws in 19th century America. Exploiting the wide variation in regulation, enforcement, and economic conditions across states and time, we find that usury laws when binding reduce credit and economic activity, especially for smaller firms. We examine the motives of regulation and find that usury laws coincide with other economic and political policies favoring wealthy political incumbents, particularly when they have more voting power. The evidence suggests financial regulation is driven by private interests capturing rents from others rather than public interests protecting the underserved.

Original languageEnglish (US)
Pages (from-to)1029-1073
Number of pages45
JournalJournal of Finance
Volume65
Issue number3
DOIs
StatePublished - Jun 1 2010

    Fingerprint

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this