Capital requirements, risk shifting and the mortgage market

No 2061, Working Paper Series from European Central Bank

Abstract: We study the effect of changes to bank-specific capital requirements on mortgage loan supply with a new loan-level dataset containing all mortgages issued in the UK between 2005Q2 and 2007Q2. We find that a rise of a 100 basis points in capital requirements leads to a 5.4% decline in individual loan size by bank. Loans issued by competing banks rise by roughly the same amount, which is indicative of credit substitution. Borrowers with an impaired credit history (verified income) are not (most) affected. This is consistent with origination of riskier loans to grow capital by raising retained earnings. No evidence for credit substitution of non-bank finance companies is found. JEL Classification: G21, G28

Keywords: capital requirements; credit substitution; loan-level data; mortgage market (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-rmg and nep-ure
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Capital Requirements, Risk Shifting and the Mortgage Market (2016)
Working Paper: Capital requirements, risk shifting and the mortgage market (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20172061

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