The Anatomy of the Transmission of Macroprudential Policies ∗ Viral

We analyze how regulatory constraints on household leverage—in the form of loan-to-income and loan-to-value limits—a?ect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low-to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in “hot” housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-a?ected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit.

[1]  Steven Laufer,et al.  The Effect of LTV-Based Risk Weights on House Prices: Evidence from an Israeli Macroprudential Policy , 2019, Journal of Urban Economics.

[2]  Juliane Begenau,et al.  Financial Regulation in a Quantitative Model of the Modern Banking System , 2017, SSRN Electronic Journal.

[3]  J. Peydró,et al.  Monetary Policy at Work: Security and Credit Application Registers Evidence , 2017, Journal of Financial Economics.

[4]  Stijn Van Nieuwerburgh,et al.  A Macroeconomic Model with Financially Constrained Producers and Intermediaries , 2016, Econometrica.

[5]  M. Benetton,et al.  Capital requirements and mortgage pricing: Evidence from Basel II , 2020 .

[6]  Amir Sufi,et al.  Indebted Demand , 2020, The Quarterly Journal of Economics.

[7]  Marcus M. Opp,et al.  The Aggregate Demand for Bank Capital , 2020, Social Science Research Network.

[8]  F. Malherbe,et al.  The Forced Safety Effect: How Higher Capital Requirements Can Increase Bank Lending , 2020 .

[9]  Juliane Begenau.  Capital Requirements, Risk Choice, and Liquidity Provision in a Business Cycle Model , 2019, Journal of Financial Economics.

[10]  D. Tsomocos,et al.  Optimal Bank Regulation in the Presence of Credit and Run Risk , 2017, SSRN Electronic Journal.

[11]  F. Malherbe.  Optimal Capital Requirements Over the Business and Financial Cycles , 2015, American Economic Journal: Macroeconomics.

[12]  Anton Korinek,et al.  Macroprudential Regulation versus mopping up after the crash , 2020, The Review of Economic Studies.

[13]  C. O’Toole,et al.  How do macroprudential loan-to-value restrictions impact first time home buyers? A quasi-experimental approach , 2019, Journal of Banking & Finance.

[14]  Christoph Basten.  Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Counter-Cyclical Capital Buffer* , 2019, Review of Finance.

[15]  Anthony A. Defusco,et al.  Regulating Household Leverage , 2019, The Review of Economic Studies.

[16]  Erlend W. Nier,et al.  Digging Deeper--Evidence on the Effects of Macroprudential Policies from a New Database , 2019, IMF Working Papers.

[17]  J. Peydró,et al.  Macroprudential and Monetary Policy: Loan-Level Evidence from Reserve Requirements , 2019, SSRN Electronic Journal.

[18]  J. Peydró,et al.  Take it to the Limit? The Effects of Household Leverage Caps , 2019 .

[19]  A. Kashyap,et al.  Would Macroprudential Regulation Have Prevented the Last Crisis? , 2018, Journal of Economic Perspectives.

[20]  Raphael A. Auer,et al.  The Countercyclical Capital Buffer and the Composition of Bank Lending , 2016, SSRN Electronic Journal.

[21]  J. Peydró,et al.  Macroprudential Policy and Household Leverage: Evidence from Administrative Household-Level Data , 2019 .

[22]  T. Beck,et al.  The Micro Impact of Macroprudential Policies: Firm-Level Evidence , 2018, SSRN Electronic Journal.

[23]  Amir Sufi,et al.  Credit Supply and Housing Speculation , 2018, The Review of Financial Studies.

[24]  M. Benetton.  Leverage Regulation and Market Structure: A Structural Model of the UK Mortgage Market , 2018 .

[25]  Sumit Agarwal,et al.  The Effectiveness of Housing Collateral Tightening Policy , 2018 .

[26]  Itay Goldstein,et al.  Housing Price Booms and Crowding-Out Effects in Bank Lending , 2018 .

[27]  E. Mendoza,et al.  Optimal Time-Consistent Macroprudential Policy , 2013, Journal of Political Economy.

[28]  Thomas Philippon,et al.  Household Leverage and the Recession , 2011, SSRN Electronic Journal.

[29]  Christopher A. Neilson,et al.  The Equilibrium Effects of Asymmetric Information: Evidence from Consumer Credit Markets , 2018 .

[30]  Benjamin M. Sand,et al.  Do Financial Constraints Cool a Housing Boom , 2018 .

[31]  Nikola A. Tarashev,et al.  Bank Capital Allocation under Multiple Constraints , 2017 .

[32]  L. Gambacorta,et al.  The Impact of Macroprudential Policies and Their Interaction with Monetary Policy: An Empirical Analysis Using Credit Registry Data , 2017 .

[33]  T. Beck,et al.  Credit Growth and Macroprudential Policies: Preliminary Evidence on the Firm Level , 2017 .

[34]  Matteo Crosignani,et al.  The Effect of Central Bank Liquidity Injections on Bank Credit Supply , 2017 .

[35]  S. Ongena,et al.  Macroprudential Policy, Countercyclical Bank Capital Buffers, and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments , 2012, Journal of Political Economy.

[36]  M. Benetton.  Leverage Regulation and Market Structure: An Empirical Model of the UK Mortgage Market∗ , 2017 .

[37]  Nitzan Tzur-Ilan.  The Effect of Credit Constraints on Housing Choices: The Case of LTV limit , 2017 .

[38]  S. Ongena,et al.  Bank Response to Higher Capital Requirements: Evidence from a Quasi-Natural Experiment , 2018 .

[39]  F. Malherbe,et al.  A Positive Analysis of Bank Behavior Under Capital Requirements , 2016 .

[40]  A. Kermani,et al.  Credit-Induced Boom and Bust , 2016 .

[41]  Tomasz Wieladek,et al.  The Real Effects of Capital Requirements and Monetary Policy: Evidence from the United Kingdom , 2016 .

[42]  Enrico Sette,et al.  How Does Bank Capital Affect the Supply of Mortgages? Evidence from a Randomized Experiment , 2016 .

[43]  J. Peydró,et al.  Securities Trading by Banks and Credit Supply: Micro-Evidence , 2015, SSRN Electronic Journal.

[44]  Amir Sufi,et al.  Household Debt and Business Cycles Worldwide , 2015 .

[45]  Luc Laeven,et al.  Systemic Risk, Crises, and Macroprudential Regulation , 2015 .

[46]  Augustin Landier,et al.  The Risk-Shifting Hypothesis: Evidence from Subprime Originations. , 2011 .

[47]  C. O’Toole,et al.  Designing Macro-prudential Policy in Mortgage Lending: Do First Time Buyers Default Less? , 2015 .

[48]  L. Laeven,et al.  The Use and Effectiveness of Macroprudential Policies: New Evidence , 2015, SSRN Electronic Journal.

[49]  Felipe Severino,et al.  Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class , 2015 .

[50]  Javier Suarez,et al.  Capital Regulation in a Macroeconomic Model with Three Layers of Default , 2014, SSRN Electronic Journal.

[51]  S. Claessens.  An Overview of Macroprudential Policy Tools , 2014, SSRN Electronic Journal.

[52]  C. O’Toole,et al.  Do first time buyers default less? Implications for macro-prudential policy , 2014 .

[53]  Christian Eufinger,et al.  Real Effects of the Sovereign Debt Crisis in Europe: Evidence from Syndicated Loans , 2014 .

[54]  Cathérine Koch,et al.  Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Counter-Cyclical Capital Buffer , 2014 .

[55]  D. Tsomocos,et al.  How Does Macroprudential Regulation Change Bank Credit Supply? , 2014 .

[56]  Anton Korinek,et al.  Liquidity Trap and Excessive Leverage , 2014, SSRN Electronic Journal.

[57]  Charles W. Calomiris,et al.  Does Macro-Prudential Regulation Leak? Evidence from a UK Policy Experiment , 2014 .

[58]  Amir Sufi,et al.  What Explains the 2007-2009 Drop in Employment? , 2014 .

[59]  Gabriel Chodorow-reich.  The Employment Effects of Credit Market Disruptions: Firm-level Evidence from the 2008–9 Financial Crisis , 2014 .

[60]  Swati R. Ghosh,et al.  Macro-Prudential Policies to Mitigate Financial System Vulnerabilities , 2013 .

[61]  I. Werning,et al.  A Theory of Macroprudential Policies in the Presence of Nominal Rigidities , 2013 .

[62]  Amir Sufi,et al.  Household Balance Sheets, Consumption, and the Economic Slump* , 2013 .

[63]  Gauti B. Eggertsson,et al.  Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach* , 2012 .

[64]  Markus K. Brunnermeier,et al.  A Macroeconomic Model with a Financial Sector , 2012 .

[65]  V. Acharya,et al.  A Pyrrhic Victory? Bank Bailouts and Sovereign Credit Risk , 2011 .

[66]  Douglas L. Miller,et al.  Robust Inference With Multiway Clustering , 2011 .

[67]  Deniz Igan,et al.  Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea , 2011, SSRN Electronic Journal.

[68]  Felipe Severino,et al.  credit, including © notice, is given to the source. Credit Supply and House Prices: Evidence from Mortgage Market Segmentation , 2012 .

[69]  P. Lane,et al.  The Irish Crisis , 2011 .

[70]  E. Mendoza,et al.  Overborrowing, Financial Crises and ‘Macro-Prudential’ Policy? , 2011, SSRN Electronic Journal.

[71]  R. Hall.  The Long Slump , 2011 .

[72]  J. Imbs,et al.  Credit Supply and the Price of Housing , 2010 .

[73]  P. Honohan,et al.  The Irish Banking Crisis: Regulatory and Financial Stability Policy , 2010 .

[74]  N. Kiyotaki,et al.  Financial Intermediation and Credit Policy in Business Cycle Analysis , 2010 .

[75]  Javier Bianchi,et al.  Overborrowing and Systemic Externalities in the Business Cycle , 2009 .

[76]  A. Krishnamurthy,et al.  Intermediary Asset Pricing , 2008 .

[77]  G. Lorenzoni.  Inefficient Credit Booms , 2007 .

[78]  A. Khwaja,et al.  Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market , 2006 .

[79]  Nobuhiro Kiyotaki,et al.  Credit Cycles , 1995, Journal of Political Economy.

[80]  Douglas W. Diamond.  Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt , 1991, Journal of Political Economy.

[81]  Steven J. Davis,et al.  Gross Job Creation, Gross Job Destruction and Employment Reallocation , 1991 .