Weak Institutions and Credit Availability: The Impact of Crime on Bank Loans

32 Pages Posted: 16 May 2010

Date Written: July 10, 2009

Abstract

This paper analyzes the relationship between the terms on bank loans and local crime rates, employing a sample of over 300,000 bank-firm relationships. Controlling for firm, market and bank characteristics the results show that where the crime rate is higher borrowers pay higher interest rates, pledge more collateral, and resort less to asset-backed loans and more to revolving credit lines than borrowers in low-crime areas. The evidence also suggests that access to credit is adversely affected by crime. The offenses that affect the loan market are those that exogenously increase firm fragility (extortion, organized crime) and raise loss given default (fraud, fraudulent bankruptcy).

Keywords: crime, governance and growth, financial development, credit markets, banks

JEL Classification: G21, K42, O16, O17

Suggested Citation

Bonaccorsi di Patti, Emilia, Weak Institutions and Credit Availability: The Impact of Crime on Bank Loans (July 10, 2009). Bank of Italy Occasional Paper No. 52. Available at SSRN: https://ssrn.com/abstract=1606242 or http://dx.doi.org/10.2139/ssrn.1606242

Emilia Bonaccorsi di Patti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

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