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

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  • Lucia Dalla Pellegrina

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.

Suggested Citation

  • Lucia Dalla Pellegrina, 2008. "Illegal finance, interest rates and bank lending: the missing supply side of usury," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 10(3), pages 265-283.
    • Handle: RePEc:ids:gbusec:v:10:y:2008:i:3:p:265-283
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    Citations

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    Cited by:

    1. Raccanello, Kristiano, 2016. "Do Microenterprises’ size and status matter to access informal finance?./ ¿El tamaño y el registro de las microempresas permite el acceso a los mercados financieros informales?," Panorama Económico, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 12(23), pages 123-152, Segundo s.
    2. Leong, Kaiwen & Li, Huailu & Pavanini, Nicola & Walsh, Christoph, 2022. "The Welfare Effects of Law Enforcement in the Illegal Money Lending Market," IZA Discussion Papers 15359, Institute of Labor Economics (IZA).
    3. Raffaella Barone & Donato Masciandaro, 2017. "Crime, Money Laundering, And Credit Markets: Can Usury Exist At The Zero Lower Bound?," BAFFI CAREFIN Working Papers 1761, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Lucia dalla Pellegrina & Giorgio Di Maio & Donato Masciandaro & Margherita Saraceno, 2020. "Organized crime, suspicious transaction reporting and anti-money laundering regulation," Regional Studies, Taylor & Francis Journals, vol. 54(12), pages 1761-1775, December.
    5. Raffaella Barone & Roy Cerqueti & Anna Quaranta, 2012. "Illegal finance and usurers behaviour," European Journal of Law and Economics, Springer, vol. 34(2), pages 265-277, October.
    6. Raffaella Barone & Donato Masciandaro, 2019. "Cryptocurrency or usury? Crime and alternative money laundering techniques," European Journal of Law and Economics, Springer, vol. 47(2), pages 233-254, April.

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