Banking regulatory constraints and personal bankruptcy filings

61 Pages Posted: 14 Feb 2017 Last revised: 28 Jul 2021

See all articles by Chintal A. Desai

Chintal A. Desai

Virginia Commonwealth University (VCU)

David H. Downs

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate; The Kornblau Institute

Date Written: July 18, 2021

Abstract

The economic well-being of a household depends on its access to credit and to a legal system for managing debt overload. Our hypothesis is that the removal of regulatory constraints on a bank’s ability to expand in new geographic markets increases credit access to households, which in turn, contributes to the rise in consumer defaults. We find a net increase in Chapter 13 bankruptcies following a loosening of the state’s restrictions on multi-branch banking, compared to the increase in Chapter 13 bankruptcies in states that did not change their banking rules. The increased mortgage lending after branch deregulation helps explain this rise in Chapter 13 filings, suggesting that homeowners use the Chapter 13 code to save their houses. Further, the effects of the mortgage supply channel are greater in areas with less bank concentration. Overall, our findings are relevant to policymakers in their efforts to either set up a new personal insolvency regime or modify the existing bankruptcy process.

Keywords: Law and Finance; Bank Deregulation; Mortgage Supply; Personal Bankruptcy; Household Finance

JEL Classification: G28; G21; D12; D14; K35

Suggested Citation

Desai, Chintal and Downs, David H., Banking regulatory constraints and personal bankruptcy filings (July 18, 2021). Available at SSRN: https://ssrn.com/abstract=2916407 or http://dx.doi.org/10.2139/ssrn.2916407

Chintal Desai (Contact Author)

Virginia Commonwealth University (VCU) ( email )

1015 Floyd Avenue
Richmond, VA 23284
United States

David H. Downs

Virginia Commonwealth University (VCU) - Department of Finance, Insurance & Real Estate ( email )

Richmond, VA 23284-4000
United States

The Kornblau Institute ( email )

Richmond, VA 23284-4000
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
50
Abstract Views
441
PlumX Metrics