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Crime, Money Laundering, And Credit Markets: Can Usury Exist At The Zero Lower Bound?

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  • Raffaella Barone
  • Donato Masciandaro

Abstract

In advanced economies, the recent collapse of interest rates to the Zero Lower Bound (ZLB) has triggered a series of research questions on how to navigate the new zero-interest credit environment. Focusing on illegal markets, it is possible to explain why usury still remains widespread after the legal nominal interest rate has fallen to zero. If the lender is a criminal agent with money-laundering aims, the ZLB isn’t an obstacle to design and implement usury contracts. Using a dynamic model of usury for a loan having a variable interest rate and the value of the borrowing firm itself as collateral it is possible to show that notwithstanding the ZLB the criminal actor can be able achieve the money laundering purpose by expropriating the borrower of his/her collateral.

Suggested Citation

  • 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.
    • Handle: RePEc:baf:cbafwp:cbafwp1761
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    Cited by:

    1. Raffaella Barone, 2018. "The Italian CCB Reform and Usury Credit Risk: A Quantitative Analysis," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 4(3), pages 463-496, November.

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    More about this item

    Keywords

    OPTIMAL CURRENCY AREA; EUROPEAN MONETARY INTEGRATION; MONETARY POLICY; POLITICAL ECONOMICS;
    All these keywords.

    JEL classification:

    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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