The Cost of Steering in Financial Markets: Evidence from the Mortgage Market

Leonardo Gambacorta, Luigi Guiso, Paolo Emilio Mistrulli, Andrea Pozzi () and Anton Tsoy ()
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Andrea Pozzi: EIEF and CEPR
Anton Tsoy: Bank of Italy

No 1252, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We build a model of the mortgage market where banks attain their optimal mortgage portfolio by setting rates and “steering” customers. “Sophisticated” households know which mortgage type is best for them, while “naïve” ones are susceptible to steering by their banks. Using data on the universe of Italian mortgages, we estimate the model and quantify the welfare implications of steering. The analysis shows that banks’ steering activity could generate distortions, with welfare effects that vary between households depending on their degree of sophistication. However, the introduction of measures to restrict the scope for banks to steer their customers would not necessarily increase household welfare, because such activities, even if potentially distortive, may also contain useful information. By contrast, a financial literacy campaign always has a beneficial effect on the welfare of naïve households, which are proportionately more exposed to the risk of taking inappropriate financial decisions.

Keywords: steering; financial advice; mortgage market; consumer protection (search for similar items in EconPapers)
JEL-codes: D12 D18 G21 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The cost of steering in financial markets: Evidence from the mortgage market (2022)
Working Paper: The cost of steering in financial markets: evidence from the mortgage market (2019)
Working Paper: The Cost of Steering in Financial Markets: Evidence from the Mortgage Market (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1252_19

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