Illegal finance, interest rates and bank lending: the missing supply side of usury

Lucia Dalla Pellegrina

Global Business and Economics Review, 2008, vol. 10, issue 3, 265-283

Abstract: This paper aims at identifying a causal relationship going from bank interest rates and credit rationing to usury. We manage the endogeneity issues by exploiting the variables that are related to bankruptcy proceedings as exogenous factors that affect bank variables, but not the other nonmeasurable determinants of usury. The estimates carried out in Italian provinces during the period of 1999–2002 provide evidence that a higher bank credit availability reduces illegal lending, while interest rates respond ambiguously. We explain these results with the presence of contrasting forces that drive usury demand and supply. We test the robustness of our estimates using controls that capture economic and financial conditions, social standards, government intervation, the severity of punishments and the presence of organised crime.

Keywords: illegal financial markets; justice; usury; illegal finance; interest rates; bank lending; credit rationing; Italy; bank credit availability. (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (6)

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