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Lending pro-cyclicality and macroprudential policy: Evidence from Japanese LTV ratios

Arito Ono (), Hirofumi Uchida, Gregory F. Udell and Iichiro Uesugi ()

Journal of Financial Stability, 2021, vol. 53, issue C

Abstract: Using unique micro data compiled from the real estate registry in Japan, we examine more than 400,000 loan-to-value (LTV) business loan ratios to draw implications for caps on LTV ratios as a macroprudential policy measure. We find that the LTV ratio exhibits counter-cyclicality, behavior that would have severely impeded the efficacy of a simple LTV cap had it been imposed. We also find that borrowers obtaining high-LTV loans are more risky but grew faster than those with lower LTV loans, which implies that a simple fixed cap on LTV ratios might inhibit growing (albeit risky) firms from borrowing.

Keywords: LTV ratios; Pro-cyclicality; Macroprudential policy; Bubble (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Lending Pro-Cyclicality and Macro-Prudential Policy: Evidence from Japanese LTV Ratios (2016) Downloads
Working Paper: Lending Pro-Cyclicality and Macro-Prudential Policy: Evidence from Japanese LTV Ratios (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:53:y:2021:i:c:s1572308920301224

DOI: 10.1016/j.jfs.2020.100819

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