Review of Finance Vol. 13 No. 2 2009

A Welfare Analysis of Regulation in Relationship Banking Markets

Bruce Carlin¹; Rafael Rob²

¹ University of California at Los Angeles 1 Anderson School of Management , · ² University of Pennsylvania 2 Department of Economics ,

Abstract

The increasing dependence of individuals on debt financing raises several welfare considerations that we analyze in this paper. We develop a dynamic, competitive model of relationship banking to determine how regulation influences borrowing and lending behavior, and analyze how it affects welfare in the market. We characterize the lending regimes that arise based on public policy, and evaluate the optimal choice by the government to induce particular lending practices to arise. Finally, we consider the effect that a credit reporting agency has on the market. In the paper, we highlight the new empirical implications that the model generates.

DOI

10.1093/rof/rfn032

Volume

13

Issue

2

Pages

369-400

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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