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Railroads and the Bond Market - The Tontine Coffee-House

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Companies in the United States are peculiarly reliant on capital markets to obtain debt financing. Whereas large firms elsewhere often turn to banks for loans, even mid-sized companies in America find it easier to float bonds. Many cite the relative lack of large ‘universal banks’ in the United States, at least up until the recent past, as the reason for this difference. However, it isn’t clear if this is a cause or effect of the unique characteristics of American finance. As always, history offers many potential answers though. Indeed, the dynamism of the American corporate bond market and its relatively markets-oriented banking sector goes back over a century and it may owe a lot to the nation’s railroads. In the early-to-mid 19th century, on the eve of the railway boom, the United States lacked the financial infrastructure to finance any substantial capital-intensive projects. Most of the nation’s banks were small state-chartered lenders, a far cry from the large national

Companies in the United States are peculiarly reliant on capital markets to obtain debt financing. Whereas large firms elsewhere often turn to banks for loans, even mid-sized companies in America find it easier to float bonds. Many cite the relative lack of large ‘universal banks’ in the United States, at least up until the recent past, as the reason for this difference. However, it isn’t clear if this is a cause or effect of the unique characteristics of American finance. As always, history offers many potential answers though. Indeed, the dynamism of the American corporate bond market and it

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