THE BEHAVIOR OF CONSUMER LOAN RATES DURING THE 1990 CREDIT SLOWDOWN

This study re-examines the 1990 credit slowdown by investigating the l oan pricing behavior of commercial banks. We find strong evidence that large, undercapitalized banks contributed to the credit slowdown by c harging consumers a higher-than-average loan rate relative to Detter-c apitalized institutions. This disparity in lending exists even after a ccounting for bank funding costs. Thus, we argue that there was a lend ing slowdown that occurred among large, undercapitalized banks. The re luctance to lend among undercapitalized banks is at least suggestive o f behavior that is consistent with a credit crunch.