In conformity with this hypothesis, various studies have found evidence that loans provided by banks that are more capital-constrained seem more sensitive to changes in market interest rates than loans provided by highly capitalized banks. 5 Moreover, changes in the financial condition of banks may play a role in cyclical developments. I have already mentioned the cases of Japan's "lost decade."
Closer to home, some believe that the U.S. economy's recovery from the 1990-91 recession was delayed by "financial headwinds," which arose from regional shortages of bank capital (Bernanke and Lown, 1991). One might view the idea that banks are somehow "special" in their ability to gather information and to screen and monitor borrowers as rather dated.