The Glass-Steagall Act of 1933 removed commercial banks from the securities underwriting business. We evaluate the argument for the separation of commercial and investment banking, that conflicts of interest induce commercial banks to fool the public into investing in securities which turn out to be of low quality. A comparison of the performance of securities underwritten by commercial and investment banks prior to the Act shows no evidence of this. Instead, the public appears to have rationally accounted for the possibility of conflicts of interest, and this appears to have constrained the banks to underwrite high-quality securities.

This paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm. The authors analyze data collected in a survey of small firms by the Small Business Administration. The primary benefit of building close ties with an institutional creditor is that the availability of financing increases. The authors find smaller effects on the price of credit. Attempts to widen the circle of relationships by borrowing from multiple leaders increases the price and reduces the availability of credit. In sum, relationships are valuable and appear to operate more through quantities rather than prices.

This paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm. We analyze data collected in a survey of small firms by the Small Business Administration. The primary benefit of building close ties with an institutional creditor is that the availability of financing increases. We find smaller effects on the price of credit. Attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit. In sum, relationships are valuable and appear to operate more through quantities rather than prices.

This paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm. We analyze data collected in a survey of small firms by the Small Business Administration. The primary benefit of building close ties with an institutional creditor is that the availability of financing increases. We find smaller effects on the price of credit. Attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit. In sum, relationships are valuable and appear to operate more through quantities rather than prices.