Courts, banks, and credit markets in early American development

Recent literature in American financial history suggests that by the early 19th century, America had already developed a world-class financial system. Securities markets emerged in major cities, and banks gradually spread over the country. It is widely believed that this very financial system was essential in launching American economic development. However, relatively little, is known about how the newly created financial system, especially banks, interacted with existing local credit markets. This dissertation aims to evaluate the impact of early banks at the grass-root level using data from Plymouth County, Massachusetts. The study focuses on two aspects of the issue: how banks selected their borrowers, and whether they opened up to a broader range of borrowers over time. Chapter 1 surveys the literature and describes the institutions of contract enforcement and banking through the 1850's. Chapter 2 takes a close look at the lending policy of early banks. Micro level data suggests that personal loan history was crucial for credit access. Borrowers had to demonstrate their credit-worthiness by paying back current loans to secure future loans. Therefore, the bank lent conservatively; only a select group of borrowers had access to bank credit. Chapter 3 studies the change of bank credit access over time. As Chapter 2 showed, the bank at its early stage was in fact more selective in lending than the pre-existing personal credit market. However, the composition of the bank's borrower changed dramatically by 1840's. The thesis argues that the introduction of competition drove banks to extend credit to farmers and artisans. Thus the mere introduction of a single bank did not broaden access to credit. The liberalization of chartering policy in the 1820s, however, opened credit access to a wider range of borrowers.