Regulation, formal and informal enforcement and the development of the household loan market. Lessons from Italy

Luca Casolaro (), Leonardo Gambacorta and Luigi Guiso
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Luca Casolaro: Bank of Italy, Economic Research Department

No 560, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Regulation and contract enforcement may be important determinants of the development of the household loan market, as much as they are of the supply of corporate loans on which the literature has focused. This paper draws on the Italian experience to provide evidence that formal and informal institutions and banking regulation are crucial determinants of availability and cost of the household credit. Historically the Italian household credit market has been very small by international standards and its degree of development differs considerably across local markets. It has grown very fast over the last decade. This paper argues that the traditional small size reflects the joint operation of more limited legal and informal enforcement and tight financial regulation. Differences within Italy in the efficiency of the courts, in social trust and in exposure to regulation explain the geographical differences, while massive deregulation of market entry during the 1990s spurred supply and led to fast lending growth. This evidence, together with marked differences in the quality of legal enforcement, endowment of social capital and tightness of financial regulation across countries, implies that the forces found in Italy are likely to be a major explanation for the international differences in the size of the household loan market.

Keywords: consumer loans; financial liberalization; financial contracts enforcement (search for similar items in EconPapers)
JEL-codes: D12 E21 G21 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-eec, nep-fin, nep-fmk and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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