This leads to the final topic, the role of monetary policy during the buildup of financial imbalances, a role which I would argue is, in a word, crucial. I will explain why in the course of this presentation. 1.
The lender has to recoup not just the credit risk margin which compensates him for the higher default risk of lending to those on the economic edge, but also the fixed costs of making, monitoring, and recovering small loans. If the interest rate ceiling is set too low, the regulated lender will not bother to lend since it is not worth his while.