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Ponzi schemes and the financial sector: DMG and DRFE in Colombia

Marc Hofstetter, Daniel Mejía, Jose Rosas () and Miguel Urrutia

Journal of Banking & Finance, 2018, vol. 96, issue C, 18-33

Abstract: We use a novel dataset to estimate, for the first time in the literature, the effects of Ponzi schemes on the formal financial sector. DMG and DRFE, two Ponzi schemes that were shut down by the Colombian government in November 2008, had over half a million customers, who invested funds corresponding to 1.2% of Colombia's annual GDP. We find that pyramid costumers’ obtained more loans from the financial sector and their credit standings were better than those in the respective control groups while the schemes were operating. Afterwards, their loan stocks started to decrease and their ratings with the banking sector deteriorated. Prior to November 2008, deposits in the financial sector fell more in the municipalities more affected by the schemes.

Keywords: Ponzi schemes; Pyramids; Colombia; Banking; Savings and loans; Loan ratings (search for similar items in EconPapers)
JEL-codes: E21 E44 G11 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Ponzi Schemes and the Financial Sector: DMG and DRFE in Colombia (2017) Downloads
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DOI: 10.1016/j.jbankfin.2018.08.011

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Handle: RePEc:eee:jbfina:v:96:y:2018:i:c:p:18-33