Exclusion, competition, and regulation in the retail loan market

Arie Melnik and Oz Shy

Journal of Banking & Finance, 2015, vol. 52, issue C, 189-198

Abstract: Exclusion of borrowers from credit markets became a primary concern for regulators during the recovery from the recent recession. The paper analyzes loan-making institutions that set both interest rates and minimum credit requirements. We propose analytical measures of the degree of borrower exclusion from receiving loans. We analyze five market structures: Single lender, regulated interest rate, entry, interest rate discrimination, and highly-competitive lenders. Interest rate regulation improves total welfare relative to a single lender market. However, entry of a second lender reduces exclusion and generates higher total welfare. In the absence of fixed costs, perfect and Bertrand competition are optimal.

Keywords: Credit quality; Interest rate regulation; Lending; Exclusion of borrowers (search for similar items in EconPapers)
JEL-codes: D43 G21 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:52:y:2015:i:c:p:189-198

DOI: 10.1016/j.jbankfin.2014.08.019

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