Crime, Money Laundering, and Credit Markets: Can Usury Exist at the Zero Lower Bound?

19 Pages Posted: 17 Oct 2017 Last revised: 21 Dec 2017

See all articles by Raffaella Barone

Raffaella Barone

University of Salento - Department of Law

Donato Masciandaro

Bocconi University - Department of Economics

Date Written: October 1, 2017

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.

Keywords: Zero Lower Bound, Monetary Policy, Banking Regulation, Credit Markets, Usury Law, Money Laundering

JEL Classification: K40, K42, K14, G18

Suggested Citation

Barone, Raffaella and Masciandaro, Donato, Crime, Money Laundering, and Credit Markets: Can Usury Exist at the Zero Lower Bound? (October 1, 2017). BAFFI CAREFIN Centre Research Paper No. 61, Available at SSRN: https://ssrn.com/abstract=3053818 or http://dx.doi.org/10.2139/ssrn.3053818

Raffaella Barone

University of Salento - Department of Law ( email )

Campus Universitario - Via Li Tufi
LECCE, LE 73020
Italy

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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