ECON 3430 Lecture Notes - Lecture 15: Interest Rate Cap And Floor, George Stigler, Financial Literacy

• School: York University
• Department: Economics
• Course: ECON 3430
• Professor: Brenda Spotton- Visano

Document Summary

I(cid:374)(cid:272)rease i(cid:374) gro(cid:449)th i(cid:374) (cid:272)o(cid:374)su(cid:373)er fi(cid:374)a(cid:374)(cid:272)ial ser(cid:448)i(cid:272)es (cid:271)y (cid:271)usi(cid:374)esses (cid:449)ho are(cid:374)(cid:859)t (cid:271)a(cid:374)ks (cid:894)cad, us, ^they (cid:272)harge (cid:272)o(cid:374)sidera(cid:271)ly (cid:373)ore tha(cid:374) (cid:271)a(cid:374)ks, they do(cid:374)(cid:859)t (cid:272)he(cid:272)k (cid:272)o(cid:374)su(cid:373)er (cid:271)a(cid:272)kgrou(cid:374)d i(cid:374)fo. ^they(cid:859)re alter(cid:374)ati(cid:448)e fi(cid:374)a(cid:374)(cid:272)ial i(cid:374)stitutio(cid:374)s & are(cid:374)(cid:859)t regulated or (cid:373)o(cid:374)itored. Apr that is charged is also exceptionally higher than normal banks (560%) ^by cad law, nobody is allowed to charge more than 6% in apr. Prevent crises, lender of last resort (use if banks fail) Primary objective of the legislation is to protect borrowers seeking small loans by regulati(cid:374)g the (cid:272)o(cid:373)prehe(cid:374)si(cid:448)ely defi(cid:374)ed (cid:858)(cid:272)ost(cid:859) of s(cid:373)all loa(cid:374)s. ^competition can bring outcomes that are efficient, progressive, innovative. Proper institutional framework frees producer & consumer decisions to buy/sell, save & invest to make products. 19(cid:1011)1, george stigler (cid:271)elie(cid:448)es regulators are faili(cid:374)g (cid:894)they are(cid:374)(cid:859)t a(cid:272)ti(cid:374)g o(cid:374) (cid:271)est i(cid:374)terests of consumers but of those who have power) Interest rate cap on loans eliminated to allow banks greater access to (cid:272)o(cid:374)su(cid:373)er (cid:272)redit (cid:373)arkets (cid:894)(cid:1010)% (cid:449)as(cid:374)(cid:859)t high enough)