A Welfare Analysis of Regulation in Relationship Banking Markets

Bruce Ian Carlin and Rafael Rob
Authors registered in the RePEc Author Service: Rafael Robb

Review of Finance, 2009, vol. 13, issue 2, 369-400

Abstract: The increasing dependence of individuals on debt financing raises several welfare considerations that we analyze in this paper. We develop a dynamic, competitive model of relationship banking to determine how regulation influences borrowing and lending behavior, and analyze how it affects welfare in the market. We characterize the lending regimes that arise based on public policy, and evaluate the optimal choice by the government to induce particular lending practices to arise. Finally, we consider the effect that a credit reporting agency has on the market. In the paper, we highlight the new empirical implications that the model generates. Copyright 2009, Oxford University Press.

Date: 2009
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