Relationship Lending and the Great Depression

Abstract The collapse of long-term lending relationships amplified the Great Depression. We demonstrate this by developing a new measure that can be calculated from widely available data at any level aggregation. Our approach exploits differences in responsiveness loan rates to bank funding costs and is supported historical evidence theoretical arguments. reveals marginal impact suspensions on economic activity was higher more relationship-intensive areas, providing first formal relationship propagated real effects banking sector distress early 1930s.