The Great Depression of the 1930s involved a severe disruption in the supply of home mortgage credit. This paper empirically identifies a mechanism lying behind this credit crunch: the impairment of lenders' balance sheets by illiquid foreclosed real estate. With data on hundreds of building and loans (B&Ls), the leading mortgage lenders in this period, we find that the overhang of foreclosed real estate explains about 30 percent of the drop in new lending between 1930 and 1935.
ASJC Scopus subject areas
- Economics and Econometrics
- Economics, Econometrics and Finance (miscellaneous)